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Company Profile
Helen of Troy Limited is a leading
designer, producer and global marketer of brand-name
personal care and household consumer products. The Company’s
personal care products include hair dryers, curling irons, hairsetters,
women’s shavers, brushes, combs, hair accessories, home hair clippers, mirrors,
footbaths, body massagers, paraffin baths, liquid hair styling products, body powder
and skin care products. The Company’s household products include consumer product
tools in the kitchen, cleaning, barbecue, barware, storage, organization, garden and automotive
categories. The Company’s products are sold through mass merchandisers, drug chains,
department stores, warehouse clubs, grocery stores and home improvement stores.
Company growth strategy is facilitated by the sale of products under several world-respected
trade names. Helen of Troy is licensed to sell products under the trade names of Vidal Sassoon,
Revlon®, Dr. Scholl’s®, Scholl®, Sunbeam®, Health at Home®, Health o meter®, Sea Breeze® and
Vitapointe®. Helen of Troy’s owned trade names include OXO®, Good Grips®, Brut®, Vitalis®,
Final Net®, Ammens®, Condition® 3-in-1, Skin Milk®, Time Block®, Epil-Stop®, Visage
Náturel®, Dazey®, Caruso®, Karina®, DCNL®, Nandi®, and Isobel® in consumer product
categories. The Company also markets hair and beauty care products under the
Helen of Troy®, Hot Tools®, Hot Spa®, Salon Edition®, Gallery Series® and
skikin
Wigo® trademarks to the professional beauty salon industry. Helen
of Troy’s U.S. operations are headquartered in El Paso,
Texas, with offices and warehouse facilities
®
around the world.
911247ADP_BK_R2 6/10/05 10:16 AM Page 4
T
his is the fifth consecutive year of record sales
and earnings for Helen of Troy Limited, and
we are looking forward to a record-setting
performance next year as well. During the past
year, we surpassed the $500 million sales goal that we set
several years ago and have set a new sales goal of $1 billion
that we believe can be achieved before 2010. As we
embrace our opportunities and face the challenge of our
new sales goal, we reflect on the successes and
accomplishments over the past year that have seen us
achieve our current levels of record sales and earnings.
For the fiscal year ended February 28, 2005, net
income climbed to a record $76.4 million or $2.35 per
diluted share, representing a 26 percent increase over net
income of $60.5 million or $1.94 per diluted share in the
previous fiscal year. Sales increased 22 percent to a record
$581.6 million from $474.9 million in fiscal 2004,
reflecting strong financial results over the prior year’s
record sales and earnings levels. Our balance sheet also
remains strong, with year-end cash of $22 million,
shareholders’equity of $421 million, accounts receivable
of $112 million, and inventory of $137 million.
As we have done over the years, we continue to
strengthen our leadership position in the personal care
market. This is accomplished through the execution of
proven sales and marketing strategies, and by providing
consumers with innovative, high-quality products at
affordable prices.
At the 2005 International Housewares Show in
Chicago, we introduced over 120 new products, including
the Studio Tools™ Hair Appliance line, which includes
Sensor Touch™ Hair Dryer Technology and Ceramic
Finger Diffusers, both offering professional features for
retail consumers. Also introduced were the new Turbo
Dryer line, including a stylish Color-shifting Amethyst-
finish Dryer and a full-size ionic Ceramic Dryer with a
“touch of a button” retractable cord. Our new Wet / Dry 1”
and 2” Ceramic Straighteners safely straighten wet or dry
hair, the latest innovation in technology and design in the
personal appliance field. In addition to the new Perfect
Reach™ Massager and the Cushion Massager with Infrared
Gel Nodes, a full line of new grooming Shavers and
Trimmers for men and women was introduced. These,
To Our Shareholders
along with many other new
products, will help us
maintain our leadership
position in the personal care
field.
In reviewing the
Gerald J. Rubin, Chief Executive Officer
significant events of the past
year, I noticed that outside
of the quarterly earnings
reports, the majority of reported events for the past year
were related to either acquisitions or presentations at
financial conferences. I can confirm that we have been
very busy in both arenas. I will discuss below in
chronological order some of the highlights of the past year
and summarize the financial presentation efforts by saying
that we continue to be actively involved with promoting
the company to all of those within the financial community
that would like to join our shareholder group.
In June 2004, Helen of Troy completed the Senior
Notes financing related to the OXO International
acquisition. The offering was $225 million in Senior
Notes. In September 2004, Helen of Troy announced the
election of three new board members at its annual
shareholder meeting held in El Paso, Texas. Joining the
board were Timothy F. Meeker, James C. Swaim, and
Darren G. Woody. They have a total of 85 years of
combined business experience in the areas of marketing,
finance, accounting, business organization, and law.
Their knowledge and skills in business and consumer
products have been a great benefit to the Company over
the past year.
Also in September 2004, Helen of Troy announced its
acquisition of Skin Milk® and Time Block® brands from
Naterra International, Inc. of Dallas, Texas. These brands
are being marketed by our Idelle Labs group—the
Company’s men’s grooming, skin care, and hair care
division. We believe there is great potential in these lines,
and by combining these brands' names with the strength of
our current sales, marketing, and distribution capabilities,
we feel that their ultimate contribution to our overall sales
can be significant.
Continuing last year’s discussion of geographic
expansion, we have been very pleased with the increasing
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To Our Shareholders (continued)
sales levels in Mexico and Central and South America, in
addition to expanded sales in our European business units.
Efficiency, quality, and customer service continue to be
areas of management emphasis as we improve our
knowledge and utilization of the new Oracle ERP
processing systems. Our Asian support operations have
completed their move into Macau, and all of the production
quality control functions have moved into China.
Operationally, we have begun the transition of the OXO
support functions into the Oracle ERP system and expect to
have that completed by the end of fiscal year 2006.
As a leader in the personal care and consumer products
category, we stay very active in our categories, maintaining
our strategic and competitive position. As a result, the past
year has been busy, profitable, and successful. For the
following year, we expect more of the same. The overall
business environment as we head into the new year looks to
be somewhat difficult and always challenging; however, we
believe it will be another record-breaking year at Helen of
Troy. As always, I am grateful for the people who help
contribute to our success. I appreciate their tireless efforts
and extraordinary accomplishments year after year.
To our loyal shareholders, I always appreciate your
continued support, and remain dedicated to delivering
shareholder value to the organization. We hope that every
year brings increasing value to our Company. Thank you
for your support and confidence.
Gerald J. Rubin
Chairman, Chief Executive Officer
and President
Helen of Troy Limited and Subsidiaries
Stock Price Ranges
Fiscal 2005
High
Low
First quarter
Second quarter
Third quarter
Fourth quarter
$36.25
37.26
29.71
34.44
Fiscal 2004
First quarter
Second quarter
Third quarter
Fourth quarter
$16.50
22.00
27.20
30.80
$27.40
24.65
23.40
25.65
$11.80
14.45
19.29
21.63
Financial Highlights
Twelve Months Ended Last Day of February (in thousands, except per share amounts)
2005
2004
2003
2002
2001
Net sales
$581,549
$474,868
$379,751
$338,644
$333,154
Operating income
102,024
85,774
50,202
29,727
27,625
Income from continuing operations
76,672
71,562
37,792
22,008
21,684
Net earnings
76,450
60,522
38,716
29,215
17,332
Diluted earnings per share
2.35
1.94
1.31
1.00
0.60
Working capital
Total assets
Long-term debt
156,312
166,445
163,452
182,791
151,533
811,449
489,609
405,629
357,558
337,181
260,000
45,000
55,000
55,000
55,000
Stockholders’ equity
420,527
350,103
289,602
250,326
219,609
Twelve Months Ended Last Day of February (in thousands, except per share amounts)
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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-14669
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.)
CLARENDON HOUSE
CHURCH STREET
HAMILTON, BERMUDA
(Address of principal executive offices)
1 HELEN OF TROY PLAZA
EL PASO, TEXAS 79912
(Registrant's United States Mailing Address) (Zip Code)
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 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes [X] No [ ]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as the last
day of the registrant's most recently completed second quarter was $741,421,161.
As of May 5, 2005 there were 29,873,851 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, 2005, 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 91
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business
Properties
Item 2.
Legal Proceedings
Item 3.
Submission of Matters to a Vote of Security Holders
Item 4.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
2
11
12
13
14
16
18
45
48
88
88
89
90
90
90
90
90
91
95
1
ITEM 1. BUSINESS
GENERAL
PART I
Unless the context requires otherwise, references to "the Company," to "our Company," or to "Helen of
Troy" and references such as "we", "our" and "us" refer to Helen of Troy Limited and its subsidiaries.
Helen of Troy Limited is a global designer, developer, importer and distributor of an expanding
portfolio of brand-name consumer products. We have two active segments: Personal Care and Housewares.
The Personal Care segment’s products include hair dryers, straighteners, curling irons, hairsetters, mirrors, hot
air brushes, home hair clippers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs,
hair accessories, liquid hair styling products, body powder and skin care products. The Housewares segment is
new this year and reports the operations of OXO International (“OXO”) which we acquired on June 1, 2004, as
further discussed in Notes (4),(5), (6) and (16) to our consolidated financial statements. The Houseware
segment’s products include kitchen tools, household cleaning tools, storage and organization products, and
gardening tools. Both segments sell their portfolio of products principally through mass merchants, general
retail and specialty retail outlets in the United States and other countries.
In each of our segments, we rely on a strategy of providing a broad line of competitively priced
innovative products, always striving to be first to market with new product ideas. Our goal is to provide our
consumers with more functionality and higher performance at competitive price points. This strategy has
allowed us to continue to strengthen our position in both of our segments. As we extend our product lines and
enter new product categories, we intend to expand our business in our existing customer base while attracting
new customers.
We also report on a Discontinued Segment, which shows the operations of Tactica International, Inc.
(“Tactica”), which sold personal care and other consumer products to retailers and used direct response
marketing to sell such products directly to consumers. As more fully described in Note (15) to our consolidated
financial statements, on April 29, 2004 we completed the sale of our ownership interest in Tactica back to
certain of its key operating manager-shareholders. In exchange for our 55 percent ownership share of Tactica
and the release of $16,936,000 of its secured debt and accrued interest owed to us, we received marketable
securities, intellectual properties, and the right to certain tax refunds. No gain or loss was recorded as a result of
the sale. The marketable securities received in the Tactica sale carry a restriction that prevents us from
disposing of the stock prior to July 31, 2005. At February 28, 2005 the market value of these securities was
$120,000. In the third fiscal quarter of 2005, management determined the decline in market value to be other-
than-temporary and accordingly began recording losses on the stock. For fiscal 2005, the total loss on stock
available for sale was $2,910,000.
We are continually looking for opportunities to expand our brand portfolio both through internal product
development and selective acquisitions. In the Personal Care segment in the second fiscal quarter of 2005, we
began selling footbaths, massagers and memory foam products under the Health at Home® and Health o
meter® names (licensed from Sunbeam Products, Inc.). In September 2004, we acquired the TimeBlock® and
Skin Milk® body and skin care product lines from Naterrra International, Inc. (“Naterra”) as further discussed
in Note (4) to our consolidated financial statements. The Housewares segement is new this year resulting from
the acquisition of OXO which added six brands: Good Grips®, Grind it™, Steel™, Softworks®, Touchables®
and Good Grips® Basics. OXO products have strong consumer recognition and appeal due to their unique
stylish ergonomic designs and great utility at affordable prices.
2
Over the past fiscal year, we have devoted substantial resources to the implementation of our new global
information system, which became operational in September 2004. With the implementation of the new
system, most of our businesses with the exception of the newly acquired Housewares segment run under one
integrated information system. We intend to transition the Housewares segment to our new system over the
next year. The new system continues to improve and evolve as we extend functionality, tune performance and
gain operating experience.
We present financial information for each of our operating segments in Note (12) of the consolidated
financial statements. The matters discussed in this Item 1, pertain to all of our existing operating segments,
unless otherwise specified.
We use outside manufacturers to produce our goods. We sell our products to mass merchandisers, drug
chains, warehouse clubs, grocery stores, beauty supply retailers and wholesalers, and specialty retailers in the
United States and other countries.
We sell certain of our products under licenses from third parties. Our licensed trademarks include:
• Vidal Sassoon®, licensed from The Procter & Gamble Company;
• Revlon® licensed from Revlon Consumer Products Corporation;
• Dr. Scholl's®, licensed from Schering-Plough HealthCare Products, Inc.;
• Scholl® (in areas other than North America), licensed from SSL Int. Ltd.;
• Sunbeam®, Health at Home® and Health o meter® licensed from Sunbeam Products, Inc.;
• Sea Breeze®, licensed from Shiseido Company Ltd.; and
• Vitapointe®, licensed from Sara Lee Household and Body Care UK Limited.
We own and actively market a number of trademarks, including:
• OXO®
• Brut®
• Vitalis®
• Final Net®
• Ammens®
• Condition 3-in-1®
• TimeBlock®
• Skin Milk®
• Dazey®
• Caruso®
• Karina®
• Visage Náturel™
• DCNL™
• Nandi™
•
Isobel™
We also market hair and beauty care products under the following trademarks to the professional beauty
salon industry:
• Helen of Troy®
• Hot Tools®
3
• Hot Spa®
• Salon Edition®
• Gallery Series®
• Wigo®
We were incorporated as Helen of Troy Corporation in Texas in 1968 and reincorporated as Helen of
Troy Limited in Bermuda in 1994.
4
PRODUCTS
Our business is designing, developing, and selling a full line of personal care products and an expanding
line of housewares products. The following table lists the primary products we sell and some of the brand
names that appear on those products.
PRODUCTS
BRAND NAMES
PRODUCT
CATEGORY
Appliances
and
Accessories
Hand-held dryers
Curling irons, straightening irons,
hot air brushes, and brush irons
Hairsetters
Vidal Sassoon®, Revlon®, Sunbeam®, Helen of
Troy®, Salon Edition®, Hot Tools®, HOT
Professional®, Ecstasy™, Gold Series®, Gallery
Series®, Wigo®, Cosmopolitan™, and Sable®
Vidal Sassoon®, Revlon®, Sunbeam®, Helen of
Troy®, Salon Edition®, Hot Tools®, HOT
Professional®, Gold Series®, Gallery Series®,
Ecstasy™, Wigo®, Cosmopolitan™, and Sable®
Vidal Sassoon®, Revlon®, Sunbeam®,
Cosmopolitan™, and Caruso™
Revlon®, Hotspa®, Sunbeam®, Dr. Scholl's®, and
Visage Naturel™
Paraffin baths, facial brushes, facial
saunas, and other skin care
appliances
Manicure/Pedicure Systems
Foot baths Dr. Scholl's®, Scholl®, Revlon®, Sunbeam®, Carel®,
Revlon®
Foot massagers, hydro massagers,
cushion massagers, body massagers,
and memory foam products
Hair clippers, trimmers, exfoliators,
and shavers
Hard and soft-bonnet hair dryers
Hair styling, hand held mirrors,
lighted mirrors, and utility
implements
Decorative hair accessories
Grooming,
Skin Care,
and Hair
Care
Products
Liquid hair styling products
Liquid skin care products
Medicated skin care products
Fragrances, deodorants, and
antiperspirants
Hair depilatory products
and Hotspa®
Dr. Scholl's®, Scholl®, Sunbeam®, Health o Meter®,
Carel®, and Hotspa®
Vidal Sassoon®, Revlon®, and Sunbeam®
Dazey®, Lady Dazey®, Carel®, and Hot Tools®
Vidal Sassoon®, Revlon®, Sunbeam®, Wave Rage™,
Nandi™, DCNL®, and Ecstasy™
Vidal Sassoon®, Revlon®, Karina®, Karina Girl™,
HOT things™, Isobel™, DCNL®, and DCNL
Signature™
Vitalis®, Final Net®, Condition 3-in-1®, and
Vitapointe®
Sea Breeze®, TimeBlock®, Skin Milk®, and Visage
Naturel™
Ammens®
Brut®
Epil Stop®
5
PRODUCT
CATEGORY
Housewares
PRODUCTS
BRAND NAMES
Kitchen tools
OXO®, Good Grips®, Grind it™, Steel™, Softworks®,
Touchables® and Good Grips® Basics
Household cleaning tools
OXO®, Good Grips®, Softworks® and Touchables®
Storage and organization products OXO®, Good Grips®, Softworks® and Touchables®
Garden tools
OXO®, Good Grips® and Softworks®
We continue to develop new products and enhance existing products in order to maintain and improve
our position in the Personal Care and Housewares markets. For example, during fiscal 2005 we improved
existing products by adding new technologies to them. Ceramic styling plates with Pulse Technology® and
digital Ionic® dryers are examples of new technologies. Ceramic is easy to clean and radiates heat quickly
while helping to retain moisture in the hair. We were also the first to market with jade plates in straighteners
that transfer high quality temperatures and maintain heat longer than conventional straighteners. We re-
formulated, re-packaged, and re-introduced the Vitalis® brand of men’s hair care products; giving them
nationally televised exposure to an estimated audience of 14.8 million people in December 2004 with our
sponsorship of the Vitalis® Sun Bowl college football game. For our Brut® line of men’s grooming products,
we launched a new print advertising campaign, re-established customer promotion and re-introduced holiday
gift packs. Our Housewares Segment had strong consumer acceptance of its OXO Good Grips Mandoline, a
precision food cutting tool which has been compared favorably in the trade press to products selling at multiples
of its retail price.
Overall, in fiscal 2005 we introduced 426 new products across all our categories. Currently, 470
additional products are in our product development pipeline for fiscal 2006. At the 2005 International
Housewares Show in Chicago, we introduced 120 new products, up from our record 95 the previous year.
Included in our new products are important new line extensions such as new Revlon® ladies shavers, the Vidal
Sasoon® “Studio Tools®” line of professional hair styling appliances, Brut® shaving products, the Sea
Breeze® “Naturals” line of facial care products formulated and targeted for women 21 and older, new OXO®
tea kettles, and an expanded line of OXO® home storage and organization products. With the increasing
breadth and depth of our product lines, we believe we are well positioned for fiscal 2006 and beyond to
continue to deliver high levels of service to our customers and great value and choice to our consumers.
You can learn more about our currently marketed products at the following Internet addresses:
http://www.hotus.com
http://www.oxo.com
http://www.brutworld.com
SALES AND MARKETING
We market our products primarily within the United States. Sales within the United States comprised
approximately 82, 84 and 90 percent of total net sales in fiscal 2005, 2004, and 2003, respectively. Both our
North American and International operations sell their products primarily through mass merchandisers, drug
chains, warehouse clubs, catalogs, grocery stores, specialty stores, and beauty supply retailers and wholesalers.
We continue to explore and test other channels of distribution including selected tele-marketing campaigns and
online sales. We market products through a combination of outside sales representatives and our own internal
sales staff.
6
The companies from whom we license many of our brand names promote those names extensively. The
Revlon®, Vidal Sassoon®, Dr. Scholl's® and Sunbeam® trademarks are widely recognized because of
advertising and the sale of a variety of products. We believe we benefit from the name recognition associated
with a number of our licensed trademarks and seek to further improve the name recognition and perceived
quality of all the trademarks under which we sell products through our own advertising and product
development efforts. We also promote our products through television advertising and through print media,
including consumer and trade magazines and various industry trade shows.
In fiscal 2004, we reached an agreement to become the title sponsor of the Sun Bowl for the next three
years starting with the December 2004 game. The Sun Bowl is one of the longest running invitational post
season college football games in the United States with a history that spans over 70 years. The "Vitalis® Sun
Bowl" became the official name of this event. In 2004, CBS Sports broadcast the game to an estimated
nationwide audience of 14.8 million people providing us an opportunity to re-introduce the Vitalis® brand to a
whole new generation of consumers. We will continue as the sponsor for 2005 and 2006 with an option to
extend our sponsorship to 2007.
In January 2005, we entered into agreements with Don Schumacher Racing, the National Hot Rod
Association and Just Marketing, Inc., to Sponsor Brut Racing, a funny car drag racing team that has begun
participating in the NHRA Powerade Drag Racing Competition. This series of races occurs in 23 major
metropolitan markets, attracts over 2,000,000 in live attendance annually, and receives over 150 hours of live or
same day coverage on ESPN. The agreement is for three years and will give us the opportunity to extend the
introduction of the Brut® Brand to our target consumers.
MANUFACTURING AND DISTRIBUTION
We contract with unaffiliated manufacturers in the Far East, primarily in the Peoples' Republic of China,
Thailand, Taiwan, and South Korea, to manufacture a significant portion of our products in the appliance,
accessories and housewares product categories. Almost all of our grooming, skin care and hair care products
are manufactured in North America (see discussion of our dependency on third party manufacturers in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading
"Forward-Looking Information and Factors That May Affect Future Results"). For fiscal 2005, 2004 and 2003,
goods manufactured by vendors in the Far East comprised approximately 84, 89 and 95 percent, respectively, of
the dollar value of all segments’ inventory purchases. Our new Housewares segment sources approximately 99
percent of its goods from vendors in the Far East. Our Far East percentage has been declining as the impact of
purchases for our grooming, skin care and hair care products (manufactured primarily in North America)
continues to become a larger share of our purchasing activity.
The manufacturers who produce our products use formulas, molds, and certain other tooling, some of
which we own, in manufacturing those products. All our business segments employ numerous technical and
quality control persons to assure high product quality.
In total, we occupy in excess of 1,600,000 square feet of distribution space in various locations to
support our operations. Products that are manufactured in the Far East and sold in North America are shipped
to the West Coast of the United States and Canada. The products are then shipped by truck or rail service to
warehouse facilities in El Paso, Texas; Southaven, Mississippi; Monee, Illinois; Toronto, Canada; and
Vancouver, Canada, or directly to customers. We ship substantially all products to North American customers
from these warehouses by ground transportation services. Products sold outside the United States and Canada
are shipped from manufacturers primarily in the Far East, to warehouse facilities in The Netherlands, the United
7
Kingdom, Mexico, Brazil, or directly to customers. We ship products stored at the warehouses in The
Netherlands, the United Kingdom, Mexico, and Brazil to distributors or retailers.
Our customers seek to minimize their inventory levels and often demand that we fulfill their orders
within relatively short time frames. Consequently, these inventory management practices often require us to
carry substantial levels of inventory in order to meet our customers' needs.
Most of our products manufactured outside the countries in which they are sold are subject to import
duties, which have the effect of increasing the amount we pay to obtain such products.
LICENSE AGREEMENTS, TRADEMARKS, AND PATENTS
The Personal care segment depends significantly upon the continued use of trademarks licensed under
various agreements. The Vidal Sassoon®, Revlon®, Sunbeam® and Dr. Scholl's® trademarks are of particular
importance. New product introductions under licensed trademarks require approval from the respective
licensors. 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. The duration of the license agreements for the Revlon®, Vidal Sassoon®, Sunbeam®, and Dr.
Scholl's® trademarks, including the renewal terms, are 58, 28, 15 and 14 years, respectively. Upon expiration of
the current terms of these agreements, we have the right to extend their terms upon payment of a renewal fee.
The discussion below covers the primary product categories that Helen of Troy currently sells under its major
license agreements. The product categories discussed do not necessarily include all of the products that Helen of
Troy is entitled to sell under these or other license agreements.
Under an agreement with The Procter & Gamble Company, Helen of Troy is licensed to sell certain
products bearing the Vidal Sassoon® trademark worldwide, except in Asia. Products sold under the terms of
this license include hair dryers, curling irons, straightening irons, styling irons, hairsetters, hot air brushes, hair
clippers and hair trimmers, mirrors, brushes, combs, and hair care accessories.
Under agreements with Revlon Consumer Products Corporation, we are licensed to sell worldwide
except in Western Europe, hair dryers, curling irons, straightening irons, brush irons, hairsetters, brushes,
combs, mirrors, functional hair accessories, personal spa products, hair clippers and trimmers, and battery-
operated and electric women's shavers bearing the Revlon® trademark.
We are licensed to sell foot baths, foot massagers, hydro massagers, cushion massagers, body
massagers, paraffin baths, and support pillows bearing the Dr. Scholl's® trademark in the United States and
Canada, under an agreement with Schering-Plough HealthCare Products, Inc. We also are licensed to sell the
same products under the Scholl® trademark in other areas of the world through an agreement with Scholl
Limited.
Under an agreement with Sunbeam Products, Inc., we are licensed to sell hair clippers, hair trimmers,
hair dryers, curling irons, hairsetters, hot air brushes, mirrors, manicure kits, hair brushes and combs, hair
rollers, hair accessories, paraffin baths, foot massagers, back massagers, body massagers, memory foam
products, and spa products bearing the Sunbeam®, Health at Home® and Health o meter® trademarks in the
United States, Canada, Mexico, Central America, South America, and the Caribbean.
In October 2002, we acquired from The Procter & Gamble Company the right to sell products under the
trademark Sea Breeze® pursuant to a perpetual royalty free license from Shiseido Company Ltd. We currently
sell a line of liquid skin care products under the Sea Breeze® name in the United States and Canada.
8
Helen of Troy has filed or obtained licenses for over 250 design and utility patents in the United States
and several foreign countries. Most of these patents cover product designs in our Housewares segment. We
also protect certain details about our processes, products and strategies as trade secrets, keeping confidential the
information that we believe provides us with a competitive advantage. Our ability to enforce patents,
copyrights, licenses, and other intellectual property is subject to general litigation risks, as well as uncertainty as
to the enforceability of various intellectual property rights in various countries.
CUSTOMERS
Sales to Wal-Mart Stores, Inc., and its affiliate, SAM'S Club, accounted for approximately 25 percent,
28 percent, and 29 percent of our net sales in fiscal 2005, 2004, and 2003, respectively. No other customer
accounted for ten percent or more of net sales during those fiscal years.
ORDER BACKLOG
When placing orders, our retail and wholesale customers usually request that we ship the related
products within a short time frame. As such, there was no significant backlog of orders in any of our
distribution channels as of the end of fiscal 2005.
COMPETITIVE CONDITIONS
The markets in which we sell our products are very competitive and highly mature. Maintaining and
gaining market share depends heavily on product development and enhancement, pricing, quality, performance,
packaging and availability, brand name recognition, patents, and marketing and distribution approaches. In the
Personal Care segment, our primary competitors include The Conair Corporation, Applica Incorporated,
Remington Products Company, Goody Products, Inc., a division of Newell Rubbermaid, Inc., Homedics-USA,
Inc., Chattem, J&J Boots, Andrew Jergens, Loreal, Unilever, and Alberto Culver. In the Housewares segment,
the competition is highly fragmented. Our primary competitors include Kitchenaid (Lifetime Hoan
Corporation), Zyliss AG, Copco (Wilton Industries, Inc.), Simple Human, Casabella and Interdesign. Some of
these competitors have significantly greater financial and other resources than we do.
SEASONALITY
Our business is somewhat seasonal. Net sales in the third fiscal quarter accounted for approximately 35,
35, and 33 percent of fiscal 2005, 2004 and 2003 net sales, respectively. As a result of the seasonality of sales,
our working capital needs fluctuate during the year.
REGULATION
Our electrical products must meet the safety standards imposed in various national, state, local, and
provincial jurisdictions. Our 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.
The medicated skin powder that we sell under the Ammens® trademark is regulated by the United
States Food and Drug Administration.
9
EMPLOYEES
As of fiscal year end 2005, we employed 711 full-time employees in the United States, Canada, Hong
Kong, Europe, Brazil, Peru, Venezuela and Mexico of which 161 are marketing and sales employees, 111 are
distribution employees, 36 are engineering and development employees, and 403 are administrative personnel.
We also use temporary, part time and seasonal employees as needed. None of the Company's employees are
covered by a collective bargaining agreement. We have never experienced a work stoppage and we believe that
we have satisfactory working relations with our employees.
GEOGRAPHIC INFORMATION
Note (12) to the consolidated financial statements contains geographic information concerning our net
sales and long-lived assets.
AVAILABLE INFORMATION
We maintain an Internet site at the following address: http://www.hotus.com. The information contained
on the Company’s website is not included as a part of, or incorporated by reference into, this Annual Report on
Form 10-K. We make available on or through our Internet website’s Investor Relations page under the heading
“SEC Filings” certain reports and amendments to those reports that we file with or furnish to the Securities and
Exchange Commission (the "SEC") in accordance with the Securities Exchange Act of 1934 (the "Securities
Exchange Act"). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our
current reports on Form 8-K, amendments to these reports and the reports required under Section 16 of the
Securities Exchange Act of transactions in Company stock by directors and officers. Also on the Investor
Relations page, under the heading “Corporate Governance” are the Company’s Code of Ethics, Corporate
Governance Guidelines and the Charters of the Committees of the Board of Directors. We make this
information available on our website free of charge as soon as reasonably practicable after we electronically file
the information with, or furnish it to, the SEC. The public may also read and copy any of the materials we file
with the SEC in accordance with the Securities Exchange Act at the SEC's Public Reference Room at 450 Fifth
Street, N.W. Washington, D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0300. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information about our Company. The address of the SEC's
Internet site is http://www.sec.gov.
10
ITEM 2. PROPERTIES
PLANT AND FACILITIES
The Company owns, leases, or otherwise utilizes through third party management service agreements, a
total of 31 facilities which include selling, procurement, administrative and warehouse facilities worldwide. All
facilities operated by the Company are well maintained and adequate for the purpose for which they are
intended.
We own our corporate headquarters, a 135,000 square foot office building with an adjacent 408,000
square foot warehouse, located on 50 acres in El Paso, Texas. We also own 32 acres of land in El Paso, Texas
near the 50 acres on which our corporate headquarters and warehouse are located. Included in the 32 acres is 10
acres which we acquired in July 2004. The Company is holding this land for future business expansion.
Personal Care Segment - We have two warehouses in El Paso, Texas: a 408,000 square foot warehouse
that we own (adjacent to our corporate headquarters), and a 108,000 square foot warehouse under lease. We
also own a 619,000 square foot warehouse in Southaven, Mississippi, (servicing our Personal Care segment) as
well as the 29 acre plot of land on which that warehouse is located. We lease warehouse space in public
warehouses located in Canada, Hong Kong, The Netherlands, and the United Kingdom.
We own a sales and administrative facility in Sheffield, England. We also lease various sales and
administrative facilities in Danbury, Connecticut; Bentonville, Arkansas; Minneapolis, Minnesota; and Troy,
Michigan. Internationally, we lease various sales and administrative facilities in Canada, France, Germany,
Mexico, Brazil, Peru, Hong Kong, Macao and Mainland China.
Housewares Segment - We lease approximately 10,000 square feet for the Housewares’ selling and
administrative offices in New York City, New York. Through a management services agreement, we utilize
approximately 200,000 square feet of warehouse space in Monee, Illinois.
Discontinued Segment - As more fully described in Note (15) to our consolidated financial statements,
in April 2004 we completed the sale of our ownership interest in Tactica back to certain of its key operating
manager-shareholders. At and prior to that time, Tactica leased administrative offices in New York City, New
York and leased public warehouse space in Reno, Nevada.
Future Expansion - As further discussed in Note (17) to our consolidated financial statements, towards
the end of fiscal 2006 or early in fiscal 2007, the Company is planning to move its Southaven, Mississippi and
Monee, Illinois distribution operations to a newly constructed and owned 1,200,000 square foot warehouse. We
expect to sell our original Southaven, Mississippi facility. We do not expect to incur any losses on the
disposition of this facility.
11
ITEM 3. LEGAL PROCEEDINGS
Hong Kong Income Taxes - The Inland Revenue Department ("the IRD") in Hong Kong has assessed a
total of $32,086,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through
2003. Hong Kong levies taxes on income earned from certain activities conducted in Hong Kong. We are
vigorously defending our position that we conducted the activities that produced the profits in question outside
of Hong Kong. We also assert that we have complied with all applicable reporting and tax payment obligations.
In connection with the IRD's tax assessment for the fiscal years 1995 through 1997, we were required to
purchase $3,282,000 (U.S.) in tax reserve certificates in Hong Kong. During fiscal 2005, we purchased
$25,144,000 (U.S.) of additional tax reserve certificates as required by the IRD. With the purchase of these
certificates, we have purchased $28,426,000 of tax reserve certificates for fiscal years 1995 through 2003. 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 dollars and are subject to the risks associated
with foreign currency fluctuations. If the IRD's position were to prevail and if it were to assert the same position
for fiscal years after fiscal year 2003, the resulting assessment could total $18,340,000 (U.S.) in taxes for fiscal
years 2004 and 2005. We would vigorously disagree with the proposed adjustments and would aggressively
contest this matter through applicable taxing authority and judicial procedures, as appropriate.
Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of
the law, based on currently available information, we have provided for our best estimate of the probable tax
liability for this matter. While the resolution of the issue may result in tax liabilities which are significantly
higher or lower than the reserves established for this matter, management currently believes that the resolution
will not have a material effect on our consolidated financial position or liquidity. However, an unfavorable
resolution could have a material effect on our consolidated results of operations or cash flows in the quarter in
which an adjustment is recorded or the tax is due or paid.
United States Income Taxes - The Internal Revenue Service ("the IRS") has completed its audits of the
U.S. consolidated federal tax returns for fiscal years 2000, 2001 and 2002. We previously disclosed that the IRS
provided notice of proposed adjustments to taxes of approximately $13,424,000 for the three years under audit.
We have resolved the various tax issues and reached an agreement on additional tax in the amount of
$3,568,000. The resulting tax liability had already been provided for in our tax reserves and we have decreased
our tax accruals related to the IRS audits for fiscal years 2000, 2001 and 2002, accordingly. This additional tax
liability will be settled with funds already on deposit with the IRS.
Other Matters - We are 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 our consolidated financial position, results of operations, or liquidity.
12
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 2005.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
PRICE RANGE OF COMMON STOCK
Our 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 2005
First quarter
Second quarter
Third quarter
Fourth quarter
FISCAL 2004
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
-------------------- --------------------
36.25
37.26
29.71
34.44
16.50
22.00
27.20
30.80
27.40
24.65
23.40
25.65
11.80
14.45
19.29
21.63
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
We have one class of equity security outstanding at February 28, 2005; common stock with a par value
of $0.10. As of May 5, 2005 there were approximately 370 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. We estimate that approximately 30,200 individuals and
institutions hold our common stock.
CASH DIVIDENDS
Our current policy is to retain earnings to provide funds for the operation and expansion of the
Company's business and for potential acquisitions. We have not paid any cash dividends on our common stock
since inception. Our current intention is to pay no cash dividends in fiscal 2006. 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 our Board of Directors.
14
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table summarizes information about our equity compensation plans as of February 28,
2005. All outstanding awards relate to our common stock. All our equity compensation plans have been
approved by shareholder vote.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants, and rights
(b)
----------------------------------------- ----------------------------------------- -----------------------------------------
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
6,845,569
=========
$
14.60
=========
714,373 (1)
=========
-------------------------------------------------
Equity compensation plans
approved by security holders
(1) Includes 353,887 shares authorized and available for issuance in connection with the Helen of Troy Limited
1998 Employee Stock Purchase Plan, 336,000 shares under the 1995 Non-Employee Director’s Stock Option
Plan which expires on June 6, 2005 and 24,486 shares under the 1998 Employee Stock Option and Restricted
Stock Plan.
PURCHASES OF HELEN OF TROY COMMON STOCK
During the quarter ended August 31, 2003, our Board of Directors approved a resolution authorizing the
purchase, in open market or through private transactions, of up to 3,000,000 shares of our common stock over a
period extending through May 31, 2006. During the quarter ended February 28, 2005, we did not purchase any
shares. From September 1, 2003 through February 28, 2005, we have repurchased 1,563,836 shares at a total
cost of $45,611,670 or an average share price of $29.17. An additional 1,436,164 shares are authorized for
purchase under this plan.
15
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial information set forth below has been summarized from our
consolidated financial statements. This information contains certain reclassifications necessary to restate prior
years’ operations of Tactica as a discontinued segment. 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.
For the year ended the last day of February,
(in thousands, except per share data)
Statements of Income Data
Net sales (2)
Cost of sales
Gross profit
Selling, general, and administrative expenses (2), (3)
Operating income
Interest expense
Other income (expense) (4)
Earnings before income taxes
Income tax expense
Income from continuing operations
Income (loss) from discontinued segment's
operations and impairment of related assets,
net of tax (1)
Net earnings
Per Share Data
Basic
Continuing operations
Discontinued operations
Total basic earnings per share
Diluted
Continuing operations
Discontinued operations
Total diluted earnings per share
Weighted average number of common shares
outstanding:
Basic
Diluted
2005 (1)
---------------
2004 (1)
---------------
2003 (1)
---------------
2002 (1)
---------------
2001 (1)
---------------
$
581,549
307,045
---------------
274,504
172,480
---------------
102,024
(9,870)
(2,575)
---------------
89,579
12,907
---------------
76,672
$
474,868
257,651
---------------
217,217
131,443
---------------
85,774
(4,047)
4,312 (3)
---------------
86,039
14,477
---------------
71,562
$
379,751
224,027
---------------
155,724
105,522
---------------
50,202
(3,965)
2,333
---------------
48,570
10,778
---------------
37,792
$
338,644
211,041
---------------
127,603
97,876
---------------
29,727
(4,185)
1,927
---------------
27,469
5,461
---------------
22,008
$
333,154
211,013
---------------
122,141
94,516
---------------
27,625
(3,989)
3,122
---------------
26,758
5,074
---------------
21,684
(222)
---------------
$
76,450
=========
(11,040)
---------------
60,522
$
=========
924
---------------
$
38,716
=========
7,207
---------------
29,215
$
=========
(4,352)
---------------
17,332
$
=========
$
$
$
2.58
(0.01)
2.57
$
$
$
2.36
(0.01)
2.35
$
$
$
2.52
(0.39)
2.13
$
$
$
2.29
(0.35)
1.94
$
$
$
1.34
0.03
1.37
$
$
$
1.28
0.03
1.31
$
$
$
0.78
0.26
1.04
$
$
$
0.75
0.25
1.00
$
$
$
0.76
(0.15)
0.61
$
$
$
0.75
(0.15)
0.60
29,710
32,589
28,356
31,261
28,189
29,548
28,089
29,199
28,420
28,729
16
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
As of last day of February,
(in thousands)
2003
-------------------- -------------------- -------------------- -------------------- --------------------
2001
2004
2005
2002
Balance Sheet Data:
Working capital (1)
Total assets
Long-term debt
Stockholders' equity (5)
Cash dividends
$
156,312
811,449
260,000
420,527
-
$
166,445
489,609
45,000
350,103
-
$
163,452
405,629
55,000
289,602
-
$
182,791
357,558
55,000
250,326
-
$
151,533
337,181
55,000
219,609
-
(1) All fiscal year results presented include 100 percent of the results of Tactica under the line item, "Income
(loss) from discontinued segment’s operations and impairment of related assets, net of tax.” We acquired a
55 percent interest in Tactica in March 2000. On April 29, 2004 we completed the sale of our interest in
Tactica back to certain of its key operating manager-shareholders. Accordingly, the results of operations of
Tactica have been reclassified out of income from continuing operations and working capital has been
restated to eliminate the impact of Tactica's current assets and current liabilities. Also, in the fourth fiscal
quarter of 2004, we recorded a loss of $5,699,000 from the impairment of Tactica goodwill, net of
$1,938,000 of related tax benefits. Our consolidated financial statements for fiscal 2005 (for the period of
time we owned Tactica), 2004, 2003, 2002 and 2001, as restated include 100 percent of Tactica's net income
or loss because Tactica had accumulated a net deficit at the time that we acquired our ownership interest,
and because the minority shareholders of Tactica had not adequately guaranteed their portion of the
accumulated deficit.
(2) In fiscal 2003, we adopted Emerging Issues Task Force Abstract 01-9 ("EITF 01-9"). EITF 01-9 requires
that certain vendors record certain consideration given to customers as reductions of sales, rather than as
selling, general, and administrative expenses. Certain items that, prior to fiscal 2003, were classified as
selling, general, and administrative expenses have been reclassified as reductions to net sales. Those items
totaled $3,930,000 and $4,234,000 for fiscal years 2002 and 2001, respectively.
(3) In fiscal 2001, we recorded a $2,457,000 charge in selling, general and administrative expenses for the
remaining unamortized costs under a distribution agreement, which was later terminated. In fiscal 2004, we
recorded income of $2,600,000, net of legal fees, in connection with the settlement of litigation matters
related to this item. This income is included in the line item entitled "Other income.”
(4) Other income includes gains (losses) from the sale and change in market value of trading securities of
approximately ($3,410,000), $311,000, $75,000, $165,000, and $1,400,000 for fiscal years 2005, 2004,
2003, 2002, and 2001, respectively. Included in the fiscal 2005 loss is a $2,910,000 loss on marketable
securities acquired in connection with the sale of Tactica.
(5) In fiscal 2005, we repurchased 757,710 shares of common stock at a cost of $25,039,000. In fiscal 2004, we
repurchased 806,126 shares of common stock at a cost of $20,572,000. In fiscal 2001, we repurchased
815,946 shares of common stock at a cost of $4,623,000. No common stock was repurchased during the
fiscal years ended 2003 and 2002.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion contains a number of forward-looking statements, all of which are based on management’s
current expectations. Actual results may differ materially due to a number of factors, including those discussed
in the section entitled "Forward-Looking Information and Factors That May Affect Future Results" and in Item
7A. "Quantitative and Qualitative Disclosures About Market Risk."
OVERVIEW OF THE YEAR'S ACTIVITIES
Fiscal 2005 was a year of transition for our Company. We now manage and present our operating
activities under two active segments, Personal Care and Housewares; and a Discontinued Segment. The
Personal Care segment includes the global operations of hair care appliances, hair brushes, combs, hair
accessories, hair care and skin care liquids and powders, and other personal care products business. The
Housewares segment includes the operations of OXO whose key lines of business include kitchen tools,
household cleaning tools, storage and organization products, and gardening tools. Within our two active
segments, we follow a business strategy to develop and increase our market positions by expanding our lines of
competitively priced innovative products that provide the consumer with more functionality and higher
performance at competitive price points. We also continue to look for opportunities to expand our product
portfolio through selective acquisition of brands or operating businesses that expand or complement existing
product lines, and can fit synergistically with our sourcing and distribution capabilities. The following is a
summary of the key activities that we have completed or continue to implement in order to sustain future
growth and increase profitability:
• Sale of Tactica: On April 29, 2004, we completed the sale of our 55 percent ownership interest in
Tactica International, Inc. to its operating management. Tactica was sold because we believed it no
longer fit into our business model and that a sale was the most appropriate course of action to maximize
our long-term shareholder value. We received marketable securities, intellectual properties and the right
to tax refunds for our 55 percent ownership interest and the release of the secured debt Tactica owed to
us. We incurred no gain or loss on the sale transaction, over those recorded during the fourth fiscal
quarter of 2004. In the first fiscal quarter of 2005, we recorded an additional loss from discontinued
segment’s operations, net of tax benefits, of $222,000. Tactica’s assets and liabilities are shown on our
February 29, 2004 consolidated balance sheet as “Assets or Liabilities of discontinued operations held
for sale.” Tactica’s operating results are shown in our consolidated statements of income under “Income
(Loss) from discontinued segment’s operations and impairment of related assets, net of tax benefit
(expense).” The marketable securities received in the Tactica sale carry a restriction that prevents us
from disposing of the stock prior to July 31, 2005. At February 28, 2005 the market value of these
securities was $120,000. In the third fiscal quarter of 2005, management determined the decline in
market value to be other-than-temporary and accordingly began recording losses on the stock. For fiscal
2005, the total loss on stock available for sale was $2,910,000. For more information regarding the sale
of Tactica, see Note (15) to our consolidated financial statements.
• Acquisition and Financing of OXO: On June 1, 2004, we completed the acquisition of certain assets and
liabilities of OXO International for a net cash purchase price of approximately $273,173,000, including
certain liabilities. We closed several financings during the second quarter of fiscal 2005 in order to fund
this acquisition and provide an expanded capital base for potential future growth. As disclosed in Notes
(5) and (6) to our consolidated financial statements and under “Financing Activities” below, the
financings established a new five-year, $75,000,000 revolving credit facility, and we cancelled our
existing $50,000,000 revolving credit facility, borrowed and subsequently repaid a $200,000,000 Term
18
Loan Credit Agreement, and placed $225,000,000 of floating rate senior debt with five, seven and ten
year maturities. The acquisition of OXO has provided the base of operations to establish our
Housewares Segment, gave us additional retail distribution, and provided six significant brands: Good
Grips®, Grind it™, Steel™, Softworks®, Touchables® and Good Grips® Basics. OXO’s kitchen tools,
household cleaning tools, storage and organization products, and gardening tools have strong consumer
recognition and appeal due to their unique stylish ergonomic designs and great utility at affordable
prices.
• Global Enterprise Resource Planning System: During the second fiscal quarter of 2005, we substantially
completed Phase 1 of development and implementation of a new Global Enterprise Resource Planning
system, which became operational in September 2004. With the implementation of the new system,
most of our businesses with the significant exception of the newly acquired Housewares segment run
under one integrated information system. We intend to transition the Housewares segment to our new
system over the next year. The new system continues to improve and evolve as we extend functionality,
tune performance and gain operating experience.
• Acquisition of Skin Milk® and TimeBlock® Body and Skin Care Product Lines: On September 29,
2004, we acquired certain assets related to the worldwide production and distribution of the Skin Milk®
and TimeBlock® body and skin care products lines from Naterra International, Inc. The Company paid
$12,001,000 in cash in the transaction funded out of our revolving line of credit. Skin Milk® is a line of
body, bath and skin care products enriched with milk proteins, vitamins and botanical extracts.
TimeBlock® is a line of clinically tested anti-aging skin care products. The acquisition of these two
brands expands our product offerings in the Skin Care Category.
• Planned Expansion of Warehouse Capacity: With the acquisition of OXO, our management began
planning to expand our warehouse capacity. We have entered into an agreement for the construction
and purchase of a new 1,200,000 square foot warehouse in Southaven, Mississippi. Towards the end of
fiscal 2006 or early in fiscal 2007, we plan to move our existing Southaven, Mississippi and the Monee,
Illinois distribution operations, owned and operated by another party, into this new facility. We plan at
that time to sell our current Southaven, Mississippi facility and do not expect to incur any material losses
on the disposition of this facility. The Monee, Illinois facility is operated through a management
services agreement whose term will expire concurrent with the move. See Note (17) to the
accompanying consolidated financial statements for additional information regarding this planned
expansion.
• Personal Care Product Initiatives: In the Personal Care segment, during fiscal 2005 we began selling
under the Health at Home® and Health o meter® line of footbaths, massagers and memory foam
products (licensed from Sunbeam Products, Inc.). We re-formulated, re-packaged and re-introduced the
Vitalis® brand of men’s hair care products; giving them nationally televised exposure to an estimated
audience of 14.8 million people in December 2004 with our sponsorship of the Vitalis® Sun Bowl
college football game. For our Brut® line of men’s grooming products, we launched a new print
advertising campaign, re-established customer promotion, and re-introduced the holiday gift packs. We
developed important new line extensions such as new Revlon® ladies shavers, the Vidal Sasoon®
“Studio Tools®” line of professional hair styling appliances, Brut® shaving products, the Sea Breeze®
“Naturals” line of facial care products formulated and targeted for women 21 and older. These line
extensions will be available for sale in early fiscal 2006.
• Houseware Product Initiatives: Our Housewares Segment had strong consumer acceptance of its OXO
Good Grips Mandoline, a precision food cutting tool, which has been compared favorably in the trade
19
press to products selling at multiples of its retail price. We had success with the introduction of new
designs in food choppers, a fat separator and an updated soap dispensing line that offers the antibacterial
FreshCel™ sponge. New line extensions in this segment include tea kettles, and an expanded line of
home storage and organization products. OXO products have strong consumer recognition and appeal
due to their unique stylish ergonomic designs and great utility at affordable prices.
The following are financial highlights from fiscal 2005:
• Consolidated net sales grew 22.5 percent, or approximately $106,681,000 in fiscal 2005 over fiscal
2004. Our new Housewares segment, provided 16.9 percentage points of consolidated net sales growth,
or approximately $80,143,000 of net sales in nine months of operations (operations commenced on June
1, 2004). Our Personal Care segment provided 5.6 percentage points of consolidated net sales growth,
or approximately $26,538,000, principally through the increased sales of the Brut® line of men’s
grooming products.
• Looking at the year from a geographic perspective, the United States accounted for 16.3 percentage
points of our consolidated net sales growth, or approximately $77,356,000 while International
operations provided 6.2 percentage points of consolidated net sales growth, or approximately
$29,325,000. Most of the International growth came from expanding distribution in Latin America and
Europe. Latin American operations, primarily Mexico, provided 3.0 percentage points, or
approximately $14,039,000 of International net sales growth while European operations provided 2.8
percentage points, or approximately $13,468,000 of International net sales growth. Comparing fiscal
2005 versus fiscal 2004, Latin American net sales grew 128.3 percent, while European sales grew 31.5
percent.
• Our net sales growth includes the benefit of a net positive foreign exchange impact of $4,260,000.
• Consolidated operating income grew 18.9 percent or approximately $16,250,000 over the prior year.
Consolidated operating income grew at a lower rate than consolidated net sales principally due to
increased personnel expenses, increased incentive compensation costs, increased consulting fees and
depreciation associated with our new information system which was placed into service early in our
third fiscal quarter of fiscal 2005, increased consulting fees resulting from our compliance efforts with
Section 404 of the Sarbanes-Oxley Act of 2002, and an exchange rate loss of $1,142,000 in fiscal 2005
versus an exchange rate gain of $1,216,000 in fiscal 2004.
•
Interest expense was $9,870,000 in fiscal 2005 compared to $4,047,000 in fiscal 2004. The increase
was the result of increased debt in connection with our acquisition of OXO.
• Other income (expense), net was ($2,575,000) in fiscal 2005 compared to $4,312,000 in fiscal 2004.
The change was due to lower interest income over the prior year, an unrealized loss on marketable
securities of ($3,410,000) in fiscal 2005 compared to realized and unrealized gains on marketable
securities of $311,000 in fiscal 2004, and the fact that in fiscal 2004, we had recorded other income of
$2,600,000 in connection with the settlement of litigation.
• As a result of the items noted above, our net income from continuing operations increased from
$71,562,000 in fiscal 2004 to $76,672,000 in fiscal 2005 or, in percentage terms, by 7.1 percent over the
prior year.
20
• Our net income increased from $60,522,000 in fiscal 2004 to $76,450,000 in fiscal 2005 or, in
percentage terms, by 26.3 percent. Fiscal 2004 included a full year of loss from our discontinued
segment’s operations (Tactica) and impairment of related assets of $11,040,000, net of related tax
benefits, while fiscal 2005 included only two months of the discontinued segment’s loss of $222,000,
net of related tax benefits, through the date of sale; April 29, 2004.
• Our diluted earnings per share from continuing operations increased from $2.29 in fiscal 2004 to $ 2.36
in fiscal 2005, or in percentage terms, by 3.1 percent. Our diluted earnings per share increased from
$1.94 in fiscal 2004 to $2.35 in fiscal 2005, or in percentage terms, by 21.1 percent. Fiscal 2005 diluted
earnings per share includes a $0.01 loss per share from discontinued operations covering two months
activity through the date of sale of Tactica, while fiscal 2004 included a $0.35 loss per share from
discontinued operations covering a full year of operations of Tactica and the impairment of related
assets.
21
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our selected operating data, in dollars, as a
percentage of net sales, and as a year-over-year percentage change.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended (in thousands)
-------------------------------------------
2004
% Change
-------------------------
% of Net Sales (1)
--------------------------------------
2004
------------ ------------ ------------
------------ ------------
---------------------------------------------------------------------- -------------- -------------- --------------
Net sales
04/03
05/04
2005
2003
2003
2005
Personal Care Segment
Housewares Segment
Total net sales
Cost of sales
Gross profit
Selling, general, and administrative expense
Operating income
Other income (expense):
Interest expense
Other income (expense), net
Total other income (expense)
Earnings before income taxes
Income tax expense
Income from continuing operations
Income (loss) from discontinued segment's
operations and impairment of related assets in
2004, net of tax
Net earnings
* Calculation is not meaningful
$
501,406
80,143
$
474,868
-
$
379,751
-
581,549
-------------- -------------- --------------
379,751
474,868
-------------- -------------- --------------
224,027
257,651
-------------- -------------- --------------
155,724
217,217
274,504
307,045
172,480
105,522
131,443
-------------- -------------- --------------
50,202
85,774
-------------- -------------- --------------
102,024
(12,445)
(9,870)
(2,575)
(4,047)
4,312
(3,965)
2,333
-------------- -------------- --------------
(1,632)
-------------- -------------- --------------
48,570
86,039
10,778
14,477
-------------- -------------- --------------
37,792
71,562
89,579
12,907
76,672
265
(222)
924
(11,040)
-------------- -------------- --------------
$
38,716
60,522
======== ======== ========
76,450
$
$
86.2% 100.0% 100.0%
0.0%
0.0%
13.8%
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
59.0%
------------ ------------ ------------
41.0%
47.2%
52.8%
45.7%
54.3%
27.7%
29.7%
27.8%
------------ ------------ ------------
13.2%
------------ ------------ ------------
17.5%
18.1%
22.5%
5.6%
*
25.0%
*
------------ ------------
25.0%
------------ ------------
15.0%
------------ ------------
39.5%
26.4%
19.2%
31.2%
24.6%
------------ ------------
70.9%
------------ ------------
18.9%
-2.1%
-0.9%
0.9%
-1.7%
-0.4%
-1.0%
0.6%
------------ ------------ ------------
-0.4%
------------ ------------ ------------
12.8%
2.8%
------------ ------------ ------------
10.0%
15.4%
2.2%
18.1%
3.0%
13.2%
15.1%
0.1%
*
2.1%
143.9%
84.8%
-159.7%
------------ ------------
-116.2%
------------ ------------
77.1%
34.3%
------------ ------------
89.4%
4.1%
-10.8%
7.1%
0.0%
-2.3%
0.2%
------------ ------------ ------------
10.2%
======= ======= =======
13.1%
12.7%
*
*
------------ ------------
56.3%
======= =======
26.3%
(1) Net sales percentages by segment are computed as a percentage of the related segment's net sales to total net
sales. All other percentages shown are computed as a percentage of total net sales.
Net Sales:
Consolidated net sales increased 22.5 percent or $106,681,000 in fiscal 2005 over fiscal 2004. New
product acquisitions accounted for 21.8 percentage points, or $103,606,000 of the sales percentage growth over
fiscal 2004. New product acquisitions included all OXO Housewares products, acquired in June 2004; Skin
Milk® and TimeBlock® lines of skin care products, acquired in September 2004; and seven months of sales of
Brut® men’s grooming products through September of 2004. Brut® was acquired on September 29, 2003,
accordingly the last five months of the current fiscal year’s sales is treated as core sales because we have
comparable sales for the prior year. Core growth (growth without acquisitions) in fiscal 2005 was $3,075,000
or 0.7 percent. Core growth came from our appliance businesses and grooming, skin care, and hair care
products business, providing 1.7 percentage points of our overall sales growth, offset by the negative 1.0
percent impact of sales volume declines in our brushes, combs and hair accessories business.
Consolidated net sales increased 25.0 percent or $95,117,000 in fiscal 2004 over fiscal 2003.
$41,074,000, or 10.8 percentage points of the fiscal 2004 incremental sales growth is due to the acquisition in
October 2002 of six new brands and of one new brand in September 2003 in the grooming, skin care, and hair
care product group. Core growth (growth without acquisitions) in fiscal 2004 was $54,043,000, or 14.2 percent.
22
Our core growth was as a result of both unit growth and higher price points due to new product enhancements
through technology and added features. Examples include hair care appliances utilizing ionic and ceramic
technology rather than traditional heating systems. Incremental sales volume in all distribution channels also
came from an expansion of our line of massagers under the Dr. Scholl's® brand and introduction of new
products marketed on infomercials and sold at retail outlets.
Segment Net Sales:
Net sales increased 5.6 percent or $26,538,000 in our Personal Care segment in fiscal 2005 over fiscal
2004. $23,463,000 or 4.9 percentage points of the fiscal 2005 incremental sales growth, is due to the
acquisitions of the Skin Milk® and TimeBlock® lines of skin care products in September 2004 and seven
months of sales of Brut® men’s grooming products through September of 2004. Brut® was acquired on
September 29, 2003, accordingly the last five months of the current fiscal year’s sales is treated as core sales
because we have comparable sales for the prior year. As previously discussed, core growth in this segment
contributed $3,075,000 or 0.7 percentage points. Core growth came from our appliance businesses and
grooming, skin care and hair care products business, providing 1.7 percentage points of our overall sales
growth, offset by the negative 1.0 percent impact of sales volume declines in our brushes, combs and hair
accessories business. In fiscal 2004 we sold certain niche products through various channels of distribution that
accounted for approximately $14,300,000 in fiscal 2004 net sales. We evaluated the financial results and effort
required for this business and decided not to continue marketing these products. We phased out of the business
towards the end of fiscal 2004 and had insignificant sales activity in fiscal 2005. Additionally, fourth quarter
sales for fiscal 2005 were negatively impacted by softer than expected holiday season sales across many
categories of merchandise for certain retailers. This, in turn, resulted in lower sales to these retailers in late
January and early February as the customers lowered their overall inventory levels. In fiscal 2005, appliances
and accessories accounted for approximately 84 percent of the segment’s net sales while grooming, skin care
and hair care products accounted for approximately 16 percent of the segment’s net sales. Key selling brands in
this segment were Vidal Sassoon®, Revlon®, Brut®, Hot Tools®, Dr. Scholl’s® and Sunbeam®.
Net sales increased 25.0 percent or $95,117,000 in our Personal Care segment in fiscal 2004 over fiscal
2003. $41,074,000 or 10.8 percentage points of the fiscal 2004 incremental net sales growth is due to the
acquisition in October 2002 of Ammens®, Condition 3-in-1®, Final Net®, Sea Breeze®, Vitalis® and
Vitapointe® brands, and the acquisition in September 2003 of the Brut® brand. $54,043,000 or 14.2 percentage
points of the fiscal 2004 incremental net sales growth is due to core growth. In fiscal 2004, appliances and
accessories accounted for approximately 89 percent of the segment’s net sales while grooming, skin care and
hair care products accounted for approximately 11 percent of the segment’s net sales.
Our Housewares segment was established through the acquisition of the OXO product lines from WKI
Holding Company in June 2004. Net sales for the nine months of its operations during fiscal 2005 were
$80,143,000. In fiscal 2005, food preparation products accounted for approximately 84 percent of the
segment’s net sales, household cleaning tools accounted for approximately 11 percent of the segment’s net
sales, and storage, organization and garden tools accounted for 5 percent of the segment’s net sales. Key selling
brands in this segment were OXO Good Grips® and OXO Softworks®.
23
Geographic Net Sales:
The following table sets forth, for the periods indicated, our net sales by geographic region, in dollars, as
a percentage of net sales, and as a year-over-year percentage change.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended (in thousands)
-------------------------------------------
2004
% Change
-------------------------
% of Net Sales (1)
--------------------------------------
2004
------------ ------------ ------------
------------ ------------
---------------------------------------------------------------------- -------------- -------------- --------------
Net sales by geographic region
04/03
05/04
2005
2003
2005
2003
United States
International
Total net sales
$
475,212
106,337
$
339,537
$
397,856
40,214
77,012
-------------- -------------- --------------
$
$
379,751
$
474,868
======== ======== ========
581,549
81.7% 83.8% 89.4%
18.3% 16.2% 10.6%
------------ ------------ ------------
100.0% 100.0% 100.0%
======= ======= =======
19.4%
38.1%
17.2%
91.5%
------------ ------------
25.0%
======= =======
22.5%
(1) Net sales percentages by geographic region are computed as a percentage of the geographic region’s net
sales to total net sales.
In fiscal 2005, the United States accounted for 16.3 percent of our consolidated net sales growth, or
approximately $77,356,000 while International operations provided 6.2 percent or $29,325,000 of our
consolidated net sales growth. Our net sales growth includes the benefit of a net positive foreign exchange
impact of $4,260,000 in fiscal 2005. The United Kingdom, Canada, and Mexico accounted for approximately
36, 20 and 15 percent of International sales, respectively. The United Kingdom and Mexico were particularly
strong contributors to our International growth.
In fiscal 2004, the United States accounted for 15.4 percentage points of our consolidated net sales
growth, or approximately $58,319,000 while International operations provided 9.6 percentage points or
$36,798,000 of our consolidated net sales growth. Our net sales growth includes the benefit of a net positive
foreign exchange impact of $4,405,000 in fiscal 2004. The United Kingdom, Canada, and Mexico accounted
for approximately 40, 24 and 11 percent of international sales, respectively.
Gross Profit Margins:
Gross profit, as a percentage of sales increased to 47.2 percent in fiscal 2005 from 45.7 percent in fiscal
2004 and 41.0 percent in fiscal 2003. The increase is primarily due to a combination of sales mix changes to
higher margin items resulting from the acquisition of six liquid and powder hair and skin care brands from The
Procter & Gamble Company in October 2002, the Brut® acquisition in September 2003 and the OXO
acquisition in June 2004. In addition, in fiscal 2005 our margins benefited from selected product cost decreases,
new item introductions at higher margins, all of which were partially offset by selling price decreases on
selected items. Favorable currency exchange rates for the British Pound and Euro also helped improve margins
in fiscal 2005 and fiscal 2004. Almost all of our products are purchased in U.S. dollars. 41.3 percent and 51.6
percent of International sales were in British Pounds or Euros during fiscal 2005 and fiscal 2004, respectively.
Selling, general, and administrative expense ("SG&A"):
SG&A increased to 29.7 percent of net sales in fiscal 2005 from 27.7 percent in fiscal 2004. The 2.0
percent increase in SG&A between fiscal 2005 and fiscal 2004 was principally due to increased personnel
expenses, increased incentive compensation costs, increased consulting fees and depreciation associated with
our new information system, which was placed into service early in our third fiscal quarter of fiscal 2005,
increased consulting fees resulting from our compliance efforts with Section 404 of the Sarbanes-Oxley Act of
2002, and an exchange rate loss of $1,142,000 in fiscal 2005 versus an exchange rate gain of $1,216,000 in
fiscal 2004.
24
SG&A decreased to 27.7 percent of net sales in fiscal 2004 from 27.8 percent in fiscal 2003. The 0.1
percent decrease in SG&A between fiscal 2004 and fiscal 2003 resulted from the continued decrease in royalty
expense as a percentage of sales due to our renewing of royalty agreements on more favorable terms, the benefit
of prepaying minimum royalties, and an increase in sales for which we own the brand and thus do not incur
royalty payments. Freight out costs saw increases mostly due to higher fuel sur-charges. The increased
transportation costs were offset by lower distribution costs as a result of opening our new Southaven,
Mississippi warehouse in early fiscal 2004.
Operating Income by Segment:
Operating income by operating segment for fiscal 2005, 2004 and 2003 was as follows:
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended (in thousands)
-------------------------------------------
2004
% Change
-------------------------
% of Net Sales (1)
--------------------------------------
2004
------------ ------------ ------------
------------ ------------
---------------------------------------------------------------------- -------------- -------------- --------------
Operating income by segment
04/03
05/04
2003
2005
2005
2003
Personal Care
Housewares
Total operating income
* Calculation is not meaningful
$
76,993
25,031
$
85,774
-
$
50,202
-
-------------- -------------- --------------
$
50,202
85,774
======== ======== ========
102,024
$
$
18.1%
0.0%
15.4%
31.2%
13.2%
0.0%
------------ ------------ ------------
13.2%
======= ======= =======
17.5%
18.1%
-10.2%
*
70.9%
*
------------ ------------
70.9%
======= =======
18.9%
(1) Operating income percentages by segment shown are computed as a percentage of the segments’ net sales.
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 expenses used to compute each segment's operating profit are comprised of SG&A
expense directly associated with those segments, plus overhead expenses that are allocable to operating
segments. In connection with the acquisition of OXO, we agreed that World Kitchen, Inc. would perform
certain corporate functions for OXO for a transitional period of time. The costs of these functions are reflected
in SG&A for the Housewares segment’s operating income. These costs are currently expected to continue to be
incurred through the end of fiscal 2006. During this transitional period, we have not made an allocation of our
corporate overhead to OXO. We do not expect to make any allocation of our corporate overhead to OXO until
such time as the transition services provided by World Kitchen, Inc. terminate and are assumed by Helen of
Troy. When we decide that such allocations are appropriate, there may be some reduction in operating income
for the Housewares segment, offset by an equal increase in operating income for the Personal Care segment.
The extent of this operating income impact between the segments has yet to be determined.
The Personal Care segment's operating income decreased $8,781,000, or 10.2 percent for fiscal 2005
compared to fiscal 2004, and increased $35,572,000, or 70.9 percent for fiscal 2004 compared to fiscal 2003.
The Personal Care segment’s operating income as a percentage of the segment’s net sales was 15.4, 18.1, and
13.2 percent for fiscal 2005, 2004 and 2003, respectively. Increased personnel expenses, increased incentive
compensation costs, increased consulting fees and depreciation associated with our new information system
which was placed into service early in our third fiscal quarter of fiscal 2005, increased consulting fees resulting
from our compliance efforts with Section 404 of the Sarbanes-Oxley Act of 2002, and an exchange rate loss of
$1,142,000 in fiscal 2005 versus an exchange rate gain of $1,216,000 in fiscal 2004, accounted for most of the
decline in fiscal 2005 operating income. In fiscal 2004, net sales growth, improved gross margins, and
decreased SG&A, as previously discussed were the significant contributing factors to the increased operating
income in fiscal 2004 when compared to fiscal 2003.
25
The Housewares segment’s operating income as a percentage of net sales for the Housewares segment
was 31.2 percent. In connection with the acquisition of OXO, we agreed that World Kitchen, Inc. would
perform certain corporate functions for OXO for a transitional period of time. The costs of these functions are
reflected in SG&A for the Housewares segment’s operating income. These costs are currently expected to
continue to be incurred through the end of fiscal 2006. During this transitional period, we have not made an
allocation of our corporate overhead to OXO. We do not expect to make any allocation of our corporate
overhead to OXO until such time as the transition services provided by World Kitchen, Inc. terminate and are
assumed by Helen of Troy. When we decide that such allocations are appropriate, there may be some reduction
in operating income for the Housewares segment, offset by an equal increase in operating income for the
Personal Care segment. The extent of this operating income impact between the segments has yet to be
determined.
Interest expense and Other income (expense):
Interest expense increased to $9,870,000 in fiscal 2005 compared to $4,047,000 in fiscal 2004. The
overall increase in interest expense is the result of the use of both short-term and long-term debt to fund the
$273,173,000 acquisition of OXO and the $12,001,000 acquisition of TimeBlock® and Skin Milk® (See Notes
4, 5, 6 and 16 to our consolidated financial statements for related discussions of new debt financings and the
OXO, TimeBlock® and Skin Milk® acquisitions).
Interest expense increased to $4,047,000 in fiscal 2004 compared to $3,965,000 in fiscal 2003. The
additional $82,000 was due to our draw of $32,000,000 under a revolving line of credit at the end of September
2003 to purchase the rights to produce and distribute Brut® products. By the end of fiscal year 2004 we had
repaid all borrowings against the loan.
Other income (expense) was ($2,575,000) of loss in fiscal 2005 compared to income of $4,312,000 and
$2,333,000 in fiscal 2004 and 2003, respectively. The following schedule shows key components of other
income (expense):
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended (in thousands)
-------------------------------------------
2004
% Change
-------------------------
% of Net Sales (1)
--------------------------------------
2004
------------ ------------ ------------
------------ ------------
---------------------------------------------------------------------- -------------- -------------- --------------
Other income (expense):
04/03
05/04
2005
2003
2005
2003
Interest income
Realized and unrealized gain (losses) on securities
Litigation settlement gain, net
Miscellaneous other income
Total other income (expense)
* Calculation is not meaningful
$
$
$
438
311
2,600
963
359
(3,410)
-
476
1,088
67
-
1,178
-------------- -------------- --------------
$
2,333
======== ======== ========
(2,575)
4,312
$
$
0.1%
0.1%
0.5%
0.2%
0.1%
-0.6%
0.0%
0.1%
0.3%
0.0%
0.0%
0.3%
------------ ------------ ------------
0.6%
======= ======= =======
-0.4%
0.9%
*
*
-18.0% -59.7%
*
*
-50.6% -18.3%
------------ ------------
-159.7%
84.8%
======= =======
(1) Sales percentages shown are computed as a percentage of total net sales.
Interest income continued to trend lower in fiscal 2005, 2004 and 2003 due to lower levels of
temporarily invested cash being held each year and lower interest rates in fiscal 2004.
Realized and unrealized losses on securities for fiscal 2005 included a $2,910,000 loss on marketable
securities acquired in connection with the sale of Tactica (see Note 15 to our consolidated financial statements).
These marketable securities carry a restriction that prevents us from disposing of the stock prior to July 31,
2005, and are accordingly classified as stock available for sale. At acquisition, the securities had a market value
of $3,030,000. At February 28, 2005 the market value of these securities was $120,000. Management
26
determined the decline in market value to be other-than-temporary and accordingly recorded the $2,910,000
loss.
In fiscal 2004, we recorded other income of $2,600,000 in connection with the settlement of litigation.
Income tax expense:
Our fiscal 2005 income tax expense was 14.4 percent of net income before taxes, a rate substantially
lower than the 16.8 percent and 22.2 percent rates that we experienced in fiscal 2004 and 2003, respectively.
The decline was due to the continuing trend of more of our income in fiscal 2005 and 2004 being taxed in lower
tax rate jurisdictions as non-United States operations continue to become a larger portion of our business. Also,
in fiscal 2005 we decreased our tax accruals by $2,046,000 due to the settlement reached with the United States
Internal Revenue Service for fiscal years 2000 through 2002. Had these accruals not been adjusted, our income
tax expense for fiscal 2005 would have been 16.7 percent of net income before taxes.
DISCONTINUED OPERATIONS
As more fully described in Note (15) to our consolidated financial statements, on April 29, 2004 we
completed the sale of our 55 percent interest in Tactica back to certain shareholder-operating managers. In
exchange for our 55 percent share of Tactica and the release of $16,396,000 of its secured debt and accrued
interest owed to us, we received marketable securities, intellectual properties, and the right to certain tax
refunds.
Tactica was sold because we believed it no longer fit into our business model. We believe selling
Tactica was the most appropriate course of action to maximize our long-term shareholder value. The sale freed
key corporate managers to concentrate their efforts on our remaining core operating divisions and to explore
and integrate new business opportunities better suited to our long-term objectives and operating system.
Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144") provides accounting guidance for accounting for segments to be disposed by
sale and, in our circumstances, requires us to report Tactica as a discontinued operation. In accordance with
SFAS 144, we classified all assets and liabilities of Tactica as "Assets of discontinued segment held for sale”
and “Liabilities of discontinued segment held for sale" in the accompanying consolidated balance sheet as of the
end of fiscal 2004. SFAS 144 also requires us to report Tactica's operating results, net of taxes, as a separate
summarized component after net income from continuing operations for each year presented. In fiscal 2005, we
recorded a loss of $222,000 net of taxes in connection with the discontinued operations of Tactica, to record its
losses incurred for the fiscal year through the date of sale. For fiscal 2004, in connection with the discontinued
operations of Tactica and the impairment of its goodwill, we recorded a total loss of $11,040,000, net of taxes.
The accompanying consolidated statements of income and consolidated statements of cash flows contain all
appropriate reclassifications for each year presented.
27
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Selected measures of our liquidity and capital resources as of fiscal year end 2005 and 2004 are shown
below:
2005
2004
-------------------- --------------------
Accounts Receivable Turnover (Days) (1)
Inventory Turnover (Times) (1)
Working Capital
Current Ratio
Ending Debt to Equity Ratio (2)
Return on Average Equity (1)
70.0
2.4
$156,312,000
2.2 : 1
64.2%
19.9%
60.9
2.2
$166,445,000
3.2 : 1
15.7%
18.9%
(1) Accounts receivable turnover, inventory turnover, and return on average equity computations use 12 month
trailing sales, cost of sales or net income components as required by the particular measure. The current
and four prior quarters' ending balances of accounts receivable, inventory, and equity are used for the
purposes of computing the average balance component as required by the particular measure.
(2) Total debt is defined as all debt outstanding at the balance sheet date. This includes the sum of the
following lines on our consolidated balance sheets: "Current portion of long-term debt" and "Long-term
debt, less current portion.” The significant increase in the ratio is due to the additional financing we
incurred to acquire OXO and the TimeBlock® and Skin Milk® brands. For further information regarding
this financing, see Notes (4), (5), (6) and (16) to our consolidated financial statements and our discussion
below under "Financing Activities.”
Operating Activities:
Our cash balance was $21,752,000 at the end of fiscal 2005 compared to $53,048,000 at the end of fiscal
2004. Operating activities provided $45,367,000 of cash during fiscal 2005, compared to $68,918,000 during
fiscal 2004. During fiscal 2005 and fiscal 2004, net income, along with an increase in accounts payable,
accrued expenses, and income taxes payable provided operating capital necessary to fund $72,356,000 and
$18,915,000 of combined growth in accounts receivable and inventory, respectively.
In 2005, the growth in inventory and accounts receivable were required to support growth in our new
Housewares segment and the grooming, skin care, and hair care product groups in our Personal Care segment.
Accounts receivable grew $38,938,000, or 53.5 percent during fiscal 2005, compared to an increase of
$15,636,000, or 27.4 percent during fiscal 2004. Inventory grew $33,418,000 or 32.1 percent during fiscal
2005, compared to $3,279,000 or 3.3 percent during fiscal 2004.
In fiscal 2005, our accounts receivable turnover increased to 70.0 days from 60.9 days in fiscal 2004.
This growth is due to the impact throughout the year of growth in International sales, which has longer credit
terms than United States customers, extended holiday dating in the third fiscal quarter, and the unfavorable
temporary impact on our collection group’s operational effectiveness during the conversion to, and in the first
few months after implementation of our new Global Information System. In fiscal 2005, inventory turnover
increased to 2.4 from 2.2 in fiscal 2004. The increased turns were due to improved operations in our traditional
appliance business and the growth in significance of our new lines of business, which can operate on lower
inventory levels, principally the housewares, grooming, skin care, and hair care product groups.
Working capital decreased to $156,312,000 at the end of fiscal 2005 compared to $166,445,000 at the
end of fiscal 2004. Our current ratio dropped to 2.2:1 in fiscal 2005 from 3.2:1 in fiscal 2004. Our current ratio
28
continues to drop because our current liabilities, principally accounts payable and accrued expenses, are
growing in percentage terms faster than our current assets, principally receivables and inventory.
Working capital was also affected by the prepayment of certain license renewals and royalty obligations
in order to take advantage of discounts offered by licensors in exchange for early payment. In fiscal 2005, we
spent $1,689,000 prepaying certain future minimum royalty obligations. In fiscal 2004, we spent $4,749,000
prepaying license renewals and $5,251,000 prepaying certain future minimum royalty obligations. In fiscal
2003, we spent $11,500,000 prepaying certain minimum royalty obligations.
Investing Activities:
In fiscal 2005, investing activities used $279,114,000 of cash compared with $63,460,000 used in fiscal
2004. Listed below are some significant highlights of our 2005 investing activities:
• On June 1, 2004 we spent $273,173,000 to acquire certain assets and liabilities of OXO International
from WKI Holding Company, Inc. OXO serves as the underlying business platform for our new
Housewares segment, offering home product tools in several categories, including: kitchen, cleaning,
barbecue, barware, garden, automotive, storage and organization. During fiscal 2005, $262,228,000 of
the purchase price and subsequent purchase price adjustments were recorded under the investing
activities section of the cash flow statement for the fiscal year ended February 28, 2005.
• On September 29, 2004, we acquired certain assets related to the worldwide production and distribution
of TimeBlock® and Skin Milk® body and skin care products lines from Naterra International, Inc.
TimeBlock® is a line of clinically tested anti-aging skin care products. Skin Milk® is a line of body,
bath and skin care products enriched with real milk proteins, vitamins and botanical extracts. The assets
consist principally of patents, trademarks and trade names, product formulations and production
technology, distribution rights and customer lists. The Company paid the purchase price of $12,001,000
in cash funded out of the Company's revolving line of credit. The purchase price was allocated
$11,906,000 to trademarks and $95,000 to property and equipment. The entire purchase price was
recorded in the investing activities section of the cash flow statement for the fiscal year ended February
28, 2005.
• On December 15, 2004, we sold a 12,000 square foot office facility in Hong Kong for $6,726,000
resulting in a $22,000 loss. The facility was previously used as a procurement office, procurement
showroom and staff training site. These functions were moved to other facilities we maintain in Macao
and China. The proceeds from the sale of this facility are recorded under the investing activities section
of the cash flow statement for the fiscal year ended February 28, 2005.
• During fiscal 2005, we incurred capital expenditures of $5,760,000 on our Global Enterprise Resource
Planning System. On September 7, 2004, we went live on the new system. Capital spending on the
initial implementation is substantially complete, although we expect to continue to invest in significant
functionality enhancements to the new system in the quarters to follow. Also, additional funds will be
required to convert OXO to the new system. In fiscal 2005, we spent $198,000 on the OXO conversion.
We currently estimate the balance of costs yet to be incurred on enhancements and the OXO conversion
to be $1,600,000.
• During fiscal 2005, we also invested $991,000 in new molds and tooling, $1,734,000 on land to be used
for future expansion, $876,000 on additional computer software and hardware and $2,101,000 for
recurring additions and/or replacements of fixed assets in the normal and ordinary course of business.
29
• During fiscal 2005, we also invested an additional $374,000, in patent development costs primarily on
behalf of our Housewares segment.
Listed below are some significant highlights of our 2004 and 2003 investing activities:
•
In fiscal 2004, we spent $55,255,000 to acquire from Unilever NV all marketing rights, formulas, fixed
assets and production process know-how to distribute the Brut® brands in North America, Latin
America and the Caribbean. This transaction is more fully described in Note (4) to the consolidated
financial statements. In fiscal 2003, we spent $16,920,000 to acquire from The Procter & Gamble
Company all rights to the trademarks and certain rights to the formulas and production processes for
four trademarks: Ammens®,Vitalis®, Condition 3-in-1®, and Final Net®. In connection with this
acquisition, we also spent $19,000,000 to acquire rights under licenses to sell products for two additional
trademarks; Sea Breeze® and Vitapointe®.
• During fiscal 2003, we signed a new agreement with The Procter & Gamble Company and paid a
$2,000,000 licensing fee allowing us to sell appliances and combs, hair brushes, and accessories using
the Vidal Sassoon® trade name worldwide except in Australia, China, Hong Kong, India, Indonesia,
Japan, Korea, Malaysia, New Zealand, The Philippines, Singapore, Taiwan, and Thailand. In addition,
we are obligated under the agreement to pay royalties on a quarterly basis. The initial agreement was for
a ten-year term with options to extend the agreement for two additional ten-year periods.
• We spent $947,000 in fiscal 2004 completing the outfitting and startup of our Mississippi warehouse
operation, $2,142,000 on our new office facility in the UK, $5,523,000 on our global information
system, and $444,000 for normal and recurring additions and/or replacements of fixed assets in the
normal and ordinary course of business.
• We spent $16,700,000 in fiscal 2003 on the purchase, outfitting and startup of our Mississippi
warehouse operation, $3,664,000 on transportation equipment, and $312,000 for normal and recurring
additions and/or replacements of fixed assets in the normal and ordinary course of business.
Financing Activities:
During fiscal 2005, financing activities provided $202,451,000 of cash.
As mentioned in Notes (5) and (6) to our consolidated financial statements, and further discussed under
"Forward-Looking Information and Factors that may affect Future Results", during the second quarter of fiscal
2005 we entered into a series of financing transactions that established a new five-year, $75,000,000 revolving
credit facility, cancelled our existing $50,000,000 revolving credit facility, and we borrowed and subsequently
repaid a $200,000,000 Term Loan Credit Agreement, and placed $225,000,000 of floating rate senior debt with
five, seven and ten year maturities.
On June 1, 2004, we acquired certain assets and liabilities of OXO International for a net cash purchase
price of approximately $273,173,000, including the assumption of approximately $4,040,000 of certain
liabilities. To fund the acquisition, we entered into a five-year $75,000,000 Revolving Line of Credit
Agreement, dated as of June 1, 2004, with Bank of America, N.A. and other lenders and a one year
$200,000,000 Term Loan Credit Agreement, dated as of June 1, 2004, with Banc of America Mezzanine
Capital, LLC. The purchase price of the OXO International acquisition was funded by borrowings of
$73,173,000 under the Revolving Line of Credit Agreement and $200,000,000 under the Term Loan Credit
Agreement.
30
Borrowings under the Revolving Line of Credit Agreement accrue interest equal to the higher of the
Federal Funds Rate plus 0.50 percent or Bank of America's prime rate. Alternatively, upon timely election by
the Company, borrowings accrue interest based on the respective 1, 2, 3, or 6-month LIBOR rate plus a margin
of 0.75 percent to 1.25 percent based upon the "Leverage Ratio" at the time of the borrowing. The "Leverage
Ratio" is defined by the Revolving Line of Credit Agreement as the ratio of total consolidated indebtedness,
including the subject funding on such date to consolidated EBITDA ("Earnings Before Interest, Taxes,
Depreciation and Amortization") for the period of the four consecutive fiscal quarters most recently ended, with
EBITDA adjusted on a pro forma basis to reflect the acquisition of OXO and the disposition of Tactica. The
rates paid on various draws during the period from June 1, 2004 through February 28, 2005 ranged from 2.195
percent to 5.500 percent. The new credit line allows for the issuance of letters of credit up to $10,000,000.
Outstanding letters of credit reduce the $75,000,000 borrowing limit dollar for dollar. Upon the execution of
this new credit facility, our previous $50,000,000 unsecured revolving credit facility with Bank of America was
cancelled. By the end of fiscal 2005, we had paid off all borrowings under the Revolving Line of Credit. The
Revolving Line of Credit Agreement requires the maintenance of certain Debt/EBITDA, fixed charge coverage
ratios, and other customary covenants. The agreement has been guaranteed, on a joint and several basis, by the
parent company, Helen of Troy Limited, and certain U.S. subsidiaries.
Borrowings under the $200,000,000 Term Loan Credit Agreement were subsequently paid off with the
proceeds of the funding of $225,000,000 Floating Rate Senior Notes on June 29, 2004, as discussed in Notes (5)
and (6) to the consolidated financial statements. For the period, outstanding borrowings under the Term Loan
Credit Agreement accrued interest at LIBOR plus a margin of 1.125 percent.
On June 29, 2004, we closed on a $225,000,000 Floating Rate Senior Note ("Senior Notes") financing
arranged by Banc of America Securities LLC with a group of ten financial institutions. The Senior Notes
consist of $100,000,000 of five year notes, $50,000,000 of seven year notes, and $75,000,000 of ten year notes.
Interest on the notes is payable quarterly. Interest rates are reset quarterly based on the 3 month LIBOR rate
plus 85 basis points for the five and seven year notes, and the 3 month LIBOR rate plus 90 basis points for the
ten year notes. Interest rates during the latest fiscal year on these notes ranged from 2.436 to 3.410 percent for
the five and seven year notes, and 2.486 to 3.460 percent for the ten year notes. On March 29, 2005, the interest
rates on these notes were reset for the next three months at 3.940 percent for the five and seven year notes and
3.990 percent for the ten year notes. The Senior Notes allow for prepayment subject to the following terms:
five year notes can be prepaid in the first year with a 2 percent penalty, thereafter there is no penalty; seven and
ten year notes can be prepaid after one year with a 1 percent penalty, and after two years with no penalty. The
proceeds of the Senior Notes financing were used to repay the $200,000,000 borrowings under the Term Loan
Credit Agreement, and $25,000,000 of the outstanding borrowings on our $75,000,000 Revolving Line of
Credit Agreement. The Senior Notes are unsecured and require the maintenance of certain Debt/EBITDA,
fixed charge coverage ratios, consolidated net worth levels, and other customary covenants. The Senior Notes
have been guaranteed, on a joint and several basis, by the parent company, Helen of Troy Limited, and certain
U.S. subsidiaries.
At February 28, 2005, we were in compliance with all covenants under all of our financing agreements.
With the completion of these financings, the Company now operates under substantially more leverage
and incurs higher interest costs. While at February 29, 2004 we had total indebtedness of $55,000,000, as of
February 28, 2005 we had $270,000,000 in total indebtedness outstanding. This increase in debt has added new
constraints on our ability to operate our business, including but not limited to:
• our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes,
31
• an increased portion of our cash flow from operations will be required to pay interest on our debt, which
will reduce the funds available to us for our operations,
•
the new debt has been issued at variable rates of interest, which may result in higher interest expense in
the event of increases in market interest rates,
• our level of indebtedness will increase our vulnerability to general economic downturns and adverse
industry conditions,
• our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our
business and conditions in the industries in which we operate,
•
the new debt agreements contain financial and restrictive covenants, and our failure to comply with them
could result in an event of default which, if not cured or waived, could have a material adverse effect on
us. Significant restrictive covenants include limitations on among other things, our ability under certain
circumstances to:
• incur additional debt, including guarantees;
• incur certain types of liens;
• sell or otherwise dispose of assets;
• engage in mergers or consolidations;
• enter into substantial new lines of business; and
• enter into certain types of transactions with our affiliates.
In connection with these financing transactions, we incurred $4,429,000 of financing costs. These costs
are being amortized over the related lives of the various notes financed, ranging from 5 to 10 years.
On September 22, 2003, certain of our subsidiaries entered into a $50,000,000 unsecured revolving
credit facility with Bank of America to facilitate short-term borrowings and the issuance of letters of credit. All
borrowings accrued interest equal to the higher of the Federal Funds Rate plus 0.50 percent or Bank of
America's prime rate. Alternatively, upon our timely election, borrowings accrued interest based on the
respective 1, 2, 3, or 6 month LIBOR rate plus 0.75 percent (based upon the term of the borrowing). The credit
facility allowed for the issuance of letters of credit up to $10,000,000. Outstanding letters of credit reduced the
$50,000,000 borrowing limit dollar for dollar. The Bank of America credit agreement required the maintenance
of certain Debt/EBITDA, fixed charge coverage ratios, and other customary covenants. The agreement was
guaranteed, on a joint and several basis, by our parent company, Helen of Troy Limited, and certain U.S.
subsidiaries. The credit facility was cancelled on June 1, 2004.
During fiscal 2004 and fiscal 2003, we funded our activities with internally generated cash flow. While
we borrowed from time to time against certain revolving credit facilities, all borrowings were short-term and
repaid within months of the initial advances. Our most significant short-term borrowing was the draw of
$32,000,000 of cash to initially fund our September 29, 2004 acquisition of the Brut® brand. As of fiscal year
end 2004, we used internally generated operating cash flow to pay off this advance.
During the second fiscal quarter of fiscal 2004, our Board of Directors approved a resolution to
purchase, in open market or through private transactions, up to 3,000,000 shares of our common stock.
During fiscal 2005, we purchased and retired a total of 376,060 shares of our common stock on the open
market at a total purchase price of $11,243,000. An additional 381,650 shares of common stock were tendered
32
by a key shareholder and retired as payment and satisfaction of $13,797,000 of stock purchase price and federal
income tax obligations arising from the exercise of 1,000,000 options by a key employee-shareholder. This
transaction was valued at an average share price of $36.15 using the average of the high bid and low bid prices
for Helen of Troy stock as reported on the NASDAQ National Market System on the day the stock was
tendered.
During fiscal 2004, we purchased and retired a total of 344,000 shares of our common stock on the open
market at a total purchase price of $7,877,000. An additional 462,126 shares of common stock were tendered
by a key shareholder and retired as payment and satisfaction of $12,695,000 of stock purchase price and federal
income tax obligations arising from the exercise of 1,200,000 options by a key employee-shareholder. This
transaction was valued at an average share price of $27.47 using the average of the high bid and low bid prices
for Helen of Troy stock as reported on the NASDAQ National Market System on the day the stock was
tendered.
Proceeds from employee option exercises and purchases through our employee stock purchase plan
combined to provide $3,122,000 of cash and $8,320,000 in tax benefits in fiscal 2005, and $8,026,000 of cash
and $8,045,000 in tax benefits in fiscal 2004.
Contractual Obligations:
Our contractual obligations and commercial commitments, as of the end of fiscal 2005 were:
PAYMENTS DUE BY PERIOD ENDED THE LAST DAY OF FEBRUARY
(in thousands)
Contractual Obligations
--------------------------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total
2006
1 year
2007
2 years
2008
3 years
2009
4 years
2010
5 years
After
5 years
Long-term debt
Open purchase orders - inventory
Minimum royalty payments
Advertising and promotional
Operating leases
Implementation of enterprise resource planning
system
Other
Total contractual obligations
Off-Balance Sheet Arrangements:
$
270,000
125,563
18,856
24,936
3,863
$
10,000
125,563
3,595
6,875
1,486
$
10,000
-
3,708
6,914
1,234
$
10,000
-
3,713
6,114
698
$
3,000
-
3,729
1,837
243
$
103,000
-
2,946
929
202
$
134,000
-
1,165
2,267
-
1,600
13,511
1,600
5,925
-
4,431
-
3,155
-
-
-
-
-
-
-------------- -------------- -------------- -------------- -------------- -------------- --------------
$
137,432
23,680
======== ======== ======== ======== ======== ======== ========
155,044
458,329
107,077
26,287
8,809
$
$
$
$
$
$
We have no existing activities involving special purpose entities or off-balance sheet financing.
Current and Future Capital Needs:
Based on our current financial condition and current operations, we believe that cash flows from
operations and available financing sources will continue to provide sufficient capital resources to fund the
Company's foreseeable short and long-term liquidity requirements. We expect our capital needs to stem
primarily from the need to purchase sufficient levels of inventory and to carry normal levels of accounts
receivable on our balance sheet. In addition, we continue to evaluate acquisition opportunities on a regular basis
and may augment our internal growth with acquisitions of complementary businesses or product lines. We may
33
finance acquisition activity with available cash, the issuance of stock, or with additional debt, depending upon
the size and nature of any such transaction and the status of the capital markets at the time of such acquisition.
Non-monetary Transactions:
During fiscal 2003, we entered into two non-monetary transactions in which we exchanged inventory
with a net book value of approximately $3,100,000 for advertising credits. During fiscal 2005, we entered into
additional non-monetary transactions in which we exchanged inventory with a book value of approximately
$1,011,000, for additional advertising credits. As a result of these transactions, we recorded both sales and cost
of goods sold equal to the exchanged inventory's net book value, which approximated their fair value. We used
approximately $1,196,000, $1,400,000 and $600,000 of the advertising credits during fiscal 2005, 2004 and
2003, respectively. As of February 28, 2005, all credits from the 2003 transaction had been utilized. All
remaining credits are valued at $915,000 and $1,100,000 on our consolidated balance sheets at the end of fiscal
2005 and 2004, respectively, and are included in the line item entitled "Prepaid Assets."
CRITICAL ACCOUNTING POLICIES
The U.S. Securities and Exchange Commission defines critical accounting policies as "those that are
both most important to the portrayal of a company's financial condition and results, and require management's
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain." We consider the following policies to meet this definition.
Hong Kong Income Taxes - The Inland Revenue Department ("the IRD") in Hong Kong has assessed a
total of $32,086,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through
2003. Hong Kong taxes income earned from certain activities conducted in Hong Kong. We are vigorously
defending our position that we conducted the activities that produced the profits in question outside of Hong
Kong. We also assert that we have complied with all applicable reporting and tax payment obligations.
In connection with the IRD’s tax assessment for the fiscal years 1995 through 1997, we were required to
purchase $3,282,000 (U.S.) in tax reserve certificates in Hong Kong. During fiscal 2005, we purchased
additional tax reserve certificates in the amount of $25,144,000 (U.S.) as required by the IRD. With the
purchase of these certificates, we have purchased tax reserve certificates totaling $28,426,000 for fiscal years
1995 through 2003. 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 dollars and are
subject to the risks associated with foreign currency fluctuations.
If the IRD’s position were to prevail and if it were to assert the same position for fiscal years after fiscal
year 2003, the resulting assessment could total $18,340,000 (U.S.) in taxes for fiscal year 2004 and 2005. We
would vigorously disagree with the proposed adjustments and would aggressively contest this matter through
applicable taxing authority and judicial procedures, as appropriate. Although the final resolution of the proposed
adjustments is uncertain and involves unsettled areas of the law, based on currently available information, we
have provided for our best estimate of the probable tax liability for this matter. While the resolution of the issue
may result in tax liabilities which are significantly higher or lower than the reserves established for this matter,
management currently believes that the resolution will not have a material effect on our consolidated financial
position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated
results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.
34
Income Tax Provisions - We must make certain estimates and judgments in determining income tax
expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax
assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax
and financial statement purposes.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not
likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax
assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our
ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that
the recovery is not probable.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
other complex tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and
other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If
we ultimately determine that payment of these amounts are unnecessary, we reverse the liability and recognize a
tax benefit during the period in which we determine that the liability is no longer probable. We record an
additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is
less than we expect the ultimate assessment to be.
Estimates of credits to be issued to customers - We regularly receive requests for credits from retailers
for returned products or in connection with sales incentives, such as cooperative advertising and volume rebate
agreements. We reduce sales or increase selling, general, and administrative expenses, depending on the nature
of the credits, for estimated future credits to customers. Our estimates of these amounts are based either on
historical information about credits issued, relative to total sales, or on specific knowledge of incentives offered
to retailers. This process entails a significant amount of inherent subjectivity and uncertainty.
Allowance for accounts receivable - We maintain an allowance for doubtful accounts for estimated
losses that may result from the inability of our customers to make required payments. That estimate is based on
historical collection experience, current economic and market conditions, and a review of the current status of
each customer's trade accounts receivable. If the financial condition of our customers were to deteriorate or our
judgment regarding their financial condition was to change negatively, additional allowances may be required
resulting in a charge to income in the period such determination was made. Conversely, if the financial
condition of our customers were to improve or our judgment regarding their financial condition was to change
positively, a reduction in the allowances may be required resulting in an increase in income in the period such
determination was made.
Valuation of inventory - We consume our inventory stocks using a first-in-first-out system. We record
inventory on our balance sheet based on the lower of its average cost or its net realizable value. Determination
of net realizable value requires us to estimate the point in time at which an item's net realizable value drops
below its cost. We regularly review our inventory for slow-moving items and for items that we are unable to sell
at prices above their original cost. When we identify such an item, we reduce its book value to the net amount
that we expect to realize upon its sale. This process entails a significant amount of inherent subjectivity and
uncertainty.
Carrying value of long-lived assets - We apply the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") and Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144") in assessing the carrying values of our long-lived assets. SFAS 142 and SFAS 144 both require that we
consider whether circumstances or conditions exist that suggest that the carrying value of a long-lived asset
35
might be impaired. If such circumstances or conditions exist, further steps are required in order to determine
whether the carrying value of the asset exceeds its fair market value. If analyses indicate that the asset's carrying
value does exceed its fair market value, the next step is to record a loss equal to the excess of the asset's
carrying value over its fair value. The steps required by SFAS 142 and SFAS 144 entail significant amounts of
judgment and subjectivity. In fiscal 2004, we recorded a goodwill impairment charge in connection with the
discontinued operations of our Tactica segment, as more fully described in Note (15) to our consolidated
financial statements. No impairment charges were recorded in fiscal 2005.
Economic useful life of intangible assets - We apply Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142") in determining the useful economic lives of
intangible assets that we acquire and that we report on our consolidated balance sheets. SFAS 142 requires that
we amortize intangible assets, such as licenses and trademarks, over their economic useful lives, unless those
assets' economic useful lives are indefinite. If an intangible asset's economic useful life is deemed to be
indefinite, that asset is not amortized. When we acquire an intangible asset, we consider factors such as the
asset's history, our plans for that asset, and the market for products associated with the asset. We consider these
same factors when reviewing the economic useful lives of our previously acquired intangible assets as well. We
review the economic useful lives of our intangible assets at least annually. The determination of the economic
useful life of an intangible asset requires a significant amount of judgment and entails significant subjectivity
and uncertainty.
For a more comprehensive list of our accounting policies, we encourage you to read Note 1 - Summary
of Significant Accounting Policies, included in the accompanying consolidated financial statements. Note (1)
contains several other policies, including policies governing the timing of revenue recognition, that are
important to the preparation of our consolidated financial statements, but do not meet the SEC's definition of
critical accounting policies because they do not involve subjective or complex judgments.
36
FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain written and oral statements made by our Company and subsidiaries or with the approval of an
authorized executive officer of our Company may constitute "forward-looking statements" as defined under the
Private Securities Litigation Reform Act of 1995. This includes statements made in this report, in other filings
with the Securities and Exchange Commission, in press releases, and in certain other oral and written
presentations. Generally, the words "anticipates", "believes", "expects", "plans", "may", "will", "should",
"seeks", "estimates", "predict", "potential", "continue", "intends", and other similar words identify forward-
looking statements. All statements that address operating results, events or developments that we expect or
anticipate will occur in the future, including statements related to sales, earnings per share results, and
statements expressing general expectations about future operating results, are forward-looking statements. 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. The
Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.
Risk Factors
We rely on key senior management to operate our business; the loss of any of these senior managers could
have an adverse impact on our business.
We do not have a large group of senior executives in our business. Accordingly, we depend on a
small number of key senior executives to run our business. In particular, we rely heavily on the services of Mr.
Rubin, our Chief Executive Officer and President. We do not maintain "key man" life insurance on any of our
key senior executives. The loss of any of these persons could have a material adverse effect on our business,
financial condition and results of operations, particularly if we are unable to find, relocate and integrate
adequate replacements for any of these persons. Further, in order to continue to grow our business, we will
need to expand our key senior management team. We may be unable to attract or retain these persons. This
could hinder our ability to grow our business and could disrupt our operations or materially adversely affect the
success of our business.
We rely on our new Global Enterprise Resource Planning System; the failure of which could have an
adverse impact on our profitability.
On September 7, 2004, we implemented our new Global Enterprise Resource Planning System, along
with other new technologies. With the implementation of this new system, most of our businesses with the
significant exception of the newly acquired Housewares segment run under one integrated information system.
We continue with the process of closely monitoring the new system and making normal and expected
adjustments to improve its effectiveness. Complications resulting from the continuing process adjustments
could potentially cause considerable disruptions to our business. The change from the old system to the new
system continues to involve risk. Application program bugs, system conflict crashes, user error, data integrity
issues, customer data conflicts and integration issues with certain remaining legacy systems all pose potential
risks. Implementing new data standards and converting existing data to accommodate the new system's
requirements have required a significant effort across our entire organization. During the third fiscal quarter of
2005, we began the implementation and transition of our Housewares segment to the new system. We also are
implementing several significant functionality enhancements. These additional implementations will continue
to strain our internal resources, could impact our ability to do business, and may result in higher implementation
costs and concurrent reallocation of human resources.
37
To support these new technologies, we are building and supporting a much larger and more complex
information technology infrastructure. Increased computing capacity, power requirements, back-up capacities,
broadband network infrastructure and increased security needs are all potential areas for failure and risk. We
continue to rely substantially on outside vendors to assist us with implementation and enhancements and will
continue to rely on certain vendors to assist us in maintaining some of our new infrastructure. Should they fail
to perform due to events outside our control, it could affect our service levels and threaten our ability to conduct
business. Over time, we plan to transition many of these third party services to our in-house staff and continue
with significant training efforts in order to do so. The transition from third party services to in-house staffing of
such services poses risks that could cause additional business disruptions. Finally, natural disasters may disrupt
our infrastructure and our disaster recovery process may not be sufficient to protect against loss.
Our business operations are dependent on our logistical systems, which include our order management
system and our computerized warehouse network. These logistical systems depend on our new Global
Enterprise Resource Planning System. Any interruption in our logistical systems would impact our ability to
procure our products from our factories and suppliers, transport them to our distribution facilities, store them
and deliver them to our customers on time and in the correct amounts.
Acquisitions and partnerships may be more costly or less profitable than anticipated and may adversely affect
the price of our company stock.
As previously mentioned, we acquired certain assets and liabilities of OXO International on June 1,
2004. On September 29, 2004, we acquired certain assets related to the worldwide production and distribution
of TimeBlock® and Skin Milk® body and skin care products lines from Naterra International, Inc.
TimeBlock® is a line of clinically tested anti-aging skin care products. Skin Milk® is a line of body, bath and
skin care products enriched with real milk proteins, vitamins and botanical extracts. To the extent that these
acquisitions are not favorably received by consumers, shareholders, analysts, and others in the investment
community, the price of our common stock could be adversely affected. In addition, acquisitions involve
numerous risks, including:
• difficulties in the assimilation of the operations, technologies, products and personnel associated with
the acquisitions,
•
the diversion of management's attention from other business concerns,
•
risks of entering markets in which we have no or limited prior experience, and
•
the potential loss of key employees associated with the acquisitions.
If we are unable to successfully integrate the operations, technologies, products, or personnel that we have
acquired, our business, results of operations, and financial condition could be materially adversely affected.
Our sales are dependent on sales from several large customers and the loss of, or substantial decline in sales
to, a top customer could have a material adverse effect on our revenues and profitability.
A few customers account for a substantial percentage of our sales. Our financial condition and results of
operations could suffer if we lost all or a portion of the sales to these customers. In particular, sales to Wal-
Mart Stores, Inc., and its affiliate, SAM'S Club, accounted for approximately 25 percent of our net sales in
fiscal 2005. While no other customer accounted for ten percent or more of net sales, our top 5 customers
accounted for approximately 44 percent of fiscal 2005 net sales. Although we have long-standing relationships
38
with our major customers, no contracts require these customers to buy from us, or to purchase a minimum
amount of our products. A substantial decrease in sales to any of our major customers could have a material
adverse effect on our financial condition and results of operations.
Our projections of sales and earnings are highly subjective and our future sales and earnings could vary in a
material amount from our projections.
Most of our major customers purchase our products electronically through electronic data interchange
and expect us to promptly deliver products from our existing inventories to the customers’ retail stores or
distribution centers. This method of ordering products allows our customers to immediately respond to changes
in demands of their retail customers. From time to time, we provide projections to our shareholders and the
investment community of our future sales and earnings. Since we do not have long-term purchase
commitments from our major customers and the customer order and ship process is short, it is difficult for us to
accurately predict the amount of our sales and related earnings. Our projections are based on management’s
best estimate of sales using historical sales data and other information deemed relevant. These projections are
highly subjective since sales to our customers can fluctuate substantially based on the demands of their retail
customers. Additionally, changes in retailer inventory management strategies could make inventory
management more difficult. Because our ability to forecast sales is highly subjective, there is a risk that our
future sales and earnings could vary materially from our projections.
We are dependent on third party manufacturers, most of which are located in the Far East and any inability
to obtain products from such manufacturers could have a material adverse effect on our business, financial
condition and results of operations.
All of our products are manufactured by unaffiliated companies, most of which are in the Far East. Risks
associated with such foreign manufacturing include: changing international political relations; changes in laws,
including tax laws, regulations and treaties; changes in labor laws, regulations, and policies; changes in customs
duties and other trade barriers; changes in shipping costs; currency exchange fluctuations; local political unrest;
an extended and complex transportation cycle; and the availability and cost of raw materials and merchandise.
To date, these factors have not significantly affected our production in the Far East. However, any change that
impairs our ability to obtain products from such manufacturers, or to obtain products at marketable rates, could
have a material adverse effect on our business, financial condition and results of operations.
With most of our manufacturers located in the Far East, our production lead times are relatively long.
Therefore, we must commit to production in advance of customer orders. If we fail to forecast customer or
consumer demand accurately, we 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 our business by increasing the amount of inventory and the cost of storing inventory.
Any of these results could have a material adverse effect on our business, financial condition and results of
operations.
We have incurred substantial debt to fund acquisitions which could have an adverse impact on our business
and profitability.
During the second quarter of fiscal 2005, we incurred substantial debt as more fully described in Notes
(5) and (6) to the consolidated financial statements and under the "Financing Activities" section of our
Management's Discussion and Analysis of Financial Condition and Results of Operations. We are now
operating under substantially more leverage and have begun to incur higher interest costs. This substantial
increase in debt has added new constraints on our ability to operate our business, including but not limited to:
39
• our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes, or other purposes,
• an increased portion of our cash flow from operations will be required to pay interest on our debt, which
will reduce the funds available to us for our operations,
•
the new debt has been issued at variable rates of interest, which may result in higher interest expense in
the event of increases in market interest rates,
• our level of indebtedness will increase our vulnerability to general economic downturns and adverse
industry conditions,
• our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our
business and conditions in the industries in which we operate,
•
the new debt agreements contain financial and restrictive covenants, and our failure to comply with them
could result in an event of default which, if not cured or waived, could have a material adverse effect on
us. Significant restrictive covenants include limitations on among other things, our ability under certain
circumstances to:
• incur additional debt, including guarantees;
• incur certain types of liens;
• sell or otherwise dispose of assets;
• engage in mergers or consolidations;
• enter into substantial new lines of business;
• enter into certain types of transactions with our affiliates.
Our disagreements with taxing authorities, tax compliance and the impact of changes in tax law could have an adverse
impact on our business.
Hong Kong Income Taxes - The Inland Revenue Department ("the IRD") in Hong Kong has assessed a
total of $32,086,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through
2003. Hong Kong taxes income earned from certain activities conducted in Hong Kong. We are vigorously
defending our position that we conducted the activities that produced the profits in question outside of Hong
Kong. We also assert that we have complied with all applicable reporting and tax payment obligations.
In connection with the IRD's tax assessment for the fiscal years 1995 through 1997, we were required to
purchase $3,282,000 (U.S.) in tax reserve certificates in Hong Kong. During fiscal 2005, we purchased
additional tax reserve certificates in the amount of $25,144,000 (U.S.) as required by the IRD. With the
purchase of these certificates, we have purchased tax reserve certificates totaling $28,426,000 for fiscal years
1995 through 2003. 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 dollars and are
subject to the risks associated with foreign currency fluctuations.
If the IRD's position were to prevail and if it were to assert the same position for fiscal years after fiscal
year 2003, the resulting assessment could total $18,340,000 (U.S.) in taxes for fiscal years 2004 and 2005. We
would vigorously disagree with the proposed adjustments and would aggressively contest this matter through
applicable taxing authority and judicial procedures, as appropriate. Although the final resolution of the proposed
40
adjustments is uncertain and involves unsettled areas of the law, based on currently available information, we
have provided for our best estimate of the probable tax liability for this matter. While the resolution of the issue
may result in tax liabilities which are significantly higher or lower than the reserves established for this matter,
management currently believes that the resolution will not have a material effect on our consolidated financial
position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated
results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.
United States Income Taxes - The Internal Revenue Service ("the IRS") has completed its audits of the
U.S. consolidated federal tax returns for fiscal years 2000, 2001 and 2002. We previously disclosed that the IRS
provided notice of proposed adjustments to taxes of approximately $13,424,000 for the three years under audit.
We have resolved the various tax issues and reached an agreement on additional tax in the amount of
$3,568,000. The resulting tax liability had already been provided for in our tax reserves and we have decreased
our tax accruals related to the IRS audits for fiscal years 2000, 2001 and 2002, accordingly. This additional tax
liability will be settled with funds already on deposit with the IRS.
The American Jobs Creation Act (“AJCA”) was signed into law by the President on October 22, 2004.
The AJCA creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income
earned outside the United States by providing an 85 percent dividend received deduction for certain dividends
from controlled foreign corporations. According to the AJCA, the amount of eligible repatriation is limited to
$500 million or the amount described as permanently reinvested earnings outside the United States in the most
recent audited financial statements filed with the Securities and Exchange Commission on or before June 30,
2003. Whether the Company will ultimately take advantage of the provision depends on a number of factors
including potential forthcoming Congressional actions, Treasury regulations and development of a qualified
reinvestment plan.
At this time, we have not made any changes to our existing position on reinvestment of foreign earnings
subject to the AJCA. Our position is that we will permanently reinvest all of the undistributed earnings of the
non-U.S. subsidiaries of certain U.S. subsidiaries, and accordingly have made no provision for U.S. federal
income taxes on these undistributed earnings. At February 28, 2005, undistributed earnings for which we had
not provided deferred U.S. federal income taxes totaled $37,748,000.
Compliance with and Changes in Tax Law – The future impact of tax legislation, regulations or
treaties, including any future legislation in the United States or abroad that would affect the companies or
subsidiaries that comprise our consolidated group is always uncertain. Our ability to respond to such changes
so that we maintain favorable tax treatment, the cost and complexity of such compliance, and its impact on our
ability to operate in jurisdictions flexibly always poses a risk.
In addition, because our Parent Company is a foreign corporation, we incur risks associated with our
ability to avoid classification of our parent company as a Controlled Foreign Corporation. In order for us to
preserve our current tax treatment of our non-U.S. earnings, it is critical we avoid Controlled Foreign
Corporation status. A Controlled Foreign Corporation is a non-U.S. corporation whose largest U.S. shareholders
(i.e., those owning 10 percent or more of its stock) together own more than 50 percent of the stock in such
corporation. If a change of ownership of the Company were to occur such that the parent company became a
Controlled Foreign Corporation, such a change could have a material negative effect on the largest U.S.
shareholders and, in turn, on the Company's business.
41
We materially rely on licensed trademarks, the loss of which could have a material adverse effect on our revenues and
profitability.
We are materially dependent on our licensed trademarks as a substantial portion of our sales revenue
comes from selling products under licensed trademarks. As a result, we are materially dependent upon the
continued use of such trademarks, particularly the Vidal Sassoon® and Revlon® trademarks. Actions taken by
licensors and other third parties could diminish greatly the value of any of our licensed trademarks. If we were
unable to sell products under these licensed trademarks or the value of the trademarks were diminished by the
licensor due to their continuing long-term financial capability to perform under the terms of the agreements or
other reasons, or due to the actions of third parties, the effect on our business, financial condition and results of
operations could be both negative and material.
In our Housewares segment, we rely on a third party to provide certain warehousing, order fulfillment and shipment
services. Any inability of the third party to continue to provide us these services until such time as we can effectively
transfer these operations to our own warehouse facilities, or problems encountered during the transition to our own
warehouse facilities, could have an adverse affect on the Company’s revenues and profitability and impair this
segment’s business.
On June 1, 2004 the Company announced that, indirectly through its subsidiary Helen of Troy Limited
(Barbados), the Company had completed its acquisition of certain assets and liabilities of OXO from World
Kitchen (GHC), LLC, WKI Holding Company, Inc. and World Kitchen, Inc. (collectively, “Seller”) for
approximately $273.2 million plus the assumption of certain liabilities. In connection with this acquisition,
Seller agreed to perform certain transitional services for the Company until March 31, 2005, including, the
warehousing, order fulfillment and shipment of OXO products. Seller and the Company agreed to extend the
period of these services until February 28, 2006. The Company is in the process of planning the transition of
the warehousing, order fulfillment and shipment services from Seller to Company on or before February 28,
2006. This transition includes, the:
• building of a new 1,200,000 square foot warehouse facility in Mississippi that was announced by the
Company and the construction of which will begin in May 2005;
• acquiring and installing new state of the art warehouse equipment and systems;
•
•
transitioning the warehousing, order fulfillment and shipment processes for the OXO products to our
new Global Enterprise Resource Planning system;
the physical moving of the existing OXO inventory from Sellers’ current warehouse facility in Illinois to
Mississippi; and
•
testing and successful implementation of the new warehouse facility and systems.
Any delays in construction of the new warehouse facility or problems encountered in connection with any of the
foregoing requirements for transitioning the warehousing, order fulfillment and shipment services could have an
adverse effect on the Company’s ability to fill orders for OXO products which could adversely affect the
Company’s revenues and profitability and impair the OXO business.
42
NEW ACCOUNTING GUIDANCE
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—an
amendment of APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary
Transactions”, is based on the principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that
principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. The provisions of this Statement will be
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of SFAS 153 is not expected to have a material impact on our financial condition, results of
operations, or cash flows.
In March 2004, the EITF reached a consensus on EITF Issue No. 03-1 ("EITF 03-1"), "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments," for which the measurement
and recognition provisions were to be effective for reporting periods beginning after June 15, 2004. However, in
September 2004, the EITF issued FASB Staff Position EITF Issue No. 03-1-1, "Effective Date of Paragraphs
10-20 of EITF Issue No. 03-1, `The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments,'" which postponed the measurement and recognition provisions of EITF 03-1, but
maintained the disclosure requirements for all investments within the scope of the guidance to be effective in
annual financial statements for fiscal years ending after June 15, 2004. EITF 03-1 provides a three-step process
for determining whether investments, including equity securities, are other than temporarily impaired and
requires additional disclosures in annual financial statements. An investment is impaired if the fair value of the
investment is less than its cost. EITF 03-1 outlines that an impairment would be considered other-than-
temporary unless: a) the investor has the ability and intent to hold an investment for a reasonable period of time
sufficient for the recovery of the fair value up to (or beyond) the cost of the investment, and b) evidence
indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence
to the contrary. In addition, the severity and duration of the impairment should also be considered in
determining whether the impairment is other-than-temporary. We have applied the guidance provided by EITF
03-1 and determined that certain recent declines in the market value of securities acquired in connection with
the sale of Tactica, as discussed in Notes (1) and (15) to our consolidated financial statements were
“other-than-temporary”, and recorded the appropriate recognition of a loss in our fiscal 2005 operating results.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4" (FAS
151). FAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling
costs, and wasted materials (spoilage) are required to be recognized as current period charges. The provisions of
FAS 151 are effective for fiscal years beginning June 15, 2005 or later. Management is currently evaluating the
provisions of FAS 151 and does not expect that the adoption will have a material impact on the Company's
consolidated financial position or results of operations.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123R "Share-Based Payment" which revises SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” The statement addresses the accounting for share-based payment transactions (for example, stock
options and awards of restricted stock) in which an employer receives employee-services in exchange for equity
securities of the company or other rights to receive future compensation that are based on the fair value of the
company’s equity securities. The statement eliminates the use of APB Opinion No. 25, “Accounting for Stock
43
Issued to Employees”, and generally requires such transactions be accounted for using a fair-value-based
method and recording compensation expense rather than an optional pro forma disclosure of what expense
amounts might be. The provisions of SFAS 123R are effective for public companies at the beginning of their
first annual period beginning after June 15, 2005.
We expect to adopt SFAS No. 123R on March 1, 2006.
SFAS No. 123R permits public companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS No. 123R for all awards granted
to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective
date; or
2. A "modified retrospective" method which includes the requirements of the modified prospective
method described above, but also permits entities to restate based on the amounts previously
recognized under SFAS No. 123R for purposes of pro forma disclosures either (a) all prior periods
presented or (b) prior interim periods of the year of adoption.
The adoption of SFAS No. 123R’s fair value method will have an impact on our results of operations,
although it will have an insignificant impact on our overall financial position. At February 28, 2005, we had
24,486 options available for issue under our employee stock option plan, and 336,000 options available for
issue under our non-employee director’s stock option plan. The director’s stock option plan is set to terminate
in June 2005, so effectively; we plan to issue only 56,000 options under this plan. Based upon our analysis of
our current stock option plans in place, and assuming no further modifications to these plans, the estimated
impact of adopting SFAS No. 123R for fiscal 2007 (fiscal year of adoption) will be to add approximately
$856,000 net of tax benefits, to our annual operating expense. SFAS No. 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after adoption. We cannot estimate what those amounts will be
in the future (because they depend on, among other things, when employees exercise stock options).
In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-2, “Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Job Creation Act of 2004.” FSP
No. 109-2 amends the existing accounting literature that requires companies to record deferred taxes on foreign
earnings, unless they intend to indefinitely reinvest those earnings outside the U.S. This pronouncement
temporarily allows companies that are evaluating whether to repatriate foreign earnings under the American
Jobs Creation Act of 2004 to delay recognizing any related taxes until that decision is made. This
pronouncement also requires companies that are considering repatriating earnings to disclose the status of their
evaluation and the potential amounts being considered for repatriation. The U.S. Treasury Department has not
issued final guidelines for applying the repatriation provisions of the American Jobs Creation Act. We continue
to evaluate this legislation and FSP No. 109-2 to determine whether we will repatriate any foreign earnings and
the impact, if any, that this pronouncement will have on our consolidated financial statements.
44
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in interest rates and currency exchange rates represent our primary financial market risks.
Fluctuation in interest rates causes variation in the amount of interest that we can earn on our available cash and
the amount of interest expense we incur on our short-term and long-term borrowings. Interest on our long-term
debt outstanding as of February 28, 2005 is both floating and fixed. Fixed rates are in place on $45,000,000
senior notes at rates ranging from 7.01 percent to 7.24 percent. Floating rates are in place on $225,000,000 of
senior notes. Interest rates on these notes are reset quarterly based on the 3 month LIBOR rate plus 85 basis
points for the five and seven year notes, and the 3 month LIBOR rate plus 90 basis points for the ten year notes.
Interest rates during the latest fiscal year on these notes ranged from 2.436 to 3.410 percent for the five and
seven year notes, and 2.486 to 3.460 percent for the ten year notes. On March 29, 2005, the interest rates on
these notes were reset for the next three months at 3.940 percent for the five and seven year notes and 3.990
percent for the ten year notes. Increases in interest rates expose us to risk on this debt. Also, with respect to our
$45,000,000 senior notes, as interest rates drop below the rates on this debt, our interest cost can exceed the cost
of capital of companies who borrow at lower rates of interest.
As mentioned in "Financial Condition, Liquidity, and Capital Resources", interest rates on our revolving
credit agreement vary based on the higher of the Federal Funds Rate + 0.50 percent or Bank of America’s prime
rate, or alternatively at our election, the LIBOR rate and the period we lock LIBOR in for. Therefore, the
potential for interest rate increases exposes us to interest rate risk on our revolving credit agreement. Our
revolving credit agreement allows for maximum revolving borrowings of $75,000,000. At the end of fiscal
2005, there were no outstanding borrowings and $150,000 of open letters of credit under this credit agreement.
The need to borrow under this agreement could ultimately subject us to higher interest rates, thus increasing the
future cost of such debt. We do not currently hedge against interest rate risk.
As mentioned under Notes (5) and (6) to our consolidated financial statements, "Financial Condition,
Liquidity, and Capital Resources", and "Forward-Looking Information and Factors that may affect Future
Results", on June 29, 2004, we established a new five year, $75,000,000 revolving credit facility, cancelled our
existing $50,000,000 revolving credit facility, and placed $225,000,000 of floating rate senior debt with five,
seven, and ten year maturities. Both the new revolving credit facility and the senior debt bear floating rates of
interest. For example, a 1 percent increase in our base interest rates could impact us by adding up to $3,000,000
of additional interest cost annually. The addition of this level of debt exposure to our consolidated operations,
and the uncertainty regarding the level of our future interest rates, substantially increases our risk profile.
Because we purchase a majority of our inventory using U.S. Dollars, we are subject to minimal short-
term foreign exchange rate risk in purchasing inventory. However long-term declines in the value of the U.S.
Dollar could subject us to higher inventory costs. Such an increase in inventory costs could occur if foreign
vendors were to react to such a decline by raising prices. Sales in the United States are transacted in U.S.
Dollars. The majority of our sales in the United Kingdom are transacted in British Pounds, in France and
Germany are transacted in Euros, in Canada are transacted in Canadian Dollars and in Mexico are transacted in
Pesos. When the U.S. Dollar strengthens against other currencies in which we transact sales, we are exposed to
foreign exchange losses on those sales because our foreign currency sales prices are not adjusted for currency
fluctuations. When the U.S. Dollar weakens against those currencies, we could realize foreign currency gains.
Our net sales denominated originally in currencies other than the U.S. Dollar totaled approximately
$87,880,000, $73,259,000 and $43,366,000 during the fiscal years ended 2005, 2004 and 2003, respectively. In
fiscal 2005, we incurred a foreign currency exchange loss of $1,142,000. We incurred foreign currency
exchange gains totaling $1,216,000 and $1,638,000 for the fiscal years ended 2004 and 2003, respectively.
45
We hedge against foreign currency exchange rate-risk by entering into a series of forward contracts
designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted
transactions denominated in currencies other than the U.S. Dollar. For transactions designated as cash flow
hedges, the effective portion of the change in the fair value (arising from the change in the spot rates from
period to period) is deferred in Other Comprehensive Income. These amounts are subsequently recognized in
"Selling, general, and administrative expense" in the consolidated statements of income in the same period as
the forecasted transactions close out over the remaining balance of their terms. The ineffective portion of the
change in fair value (arising from the change in the difference between the spot rate and the forward rate) is
recognized in the period it occurred. These amounts are also recognized in "Selling, general, and administrative
expense" in the consolidated statements of income. We do not enter into any forward exchange contracts or
similar instruments for trading or other speculative purposes.
The following table summarizes the various forward contracts we designated as cash flow hedges that
were open at the end of fiscal 2005 and 2004:
Contract
Type
February 28, 2005
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Market Value
of the
Contract in
US Dollars
(Thousands)
------------- ------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ------------------ ------------------ ----------------
($547)
Sell
($891)
Sell
($548)
Sell
($403)
Sell
($2,389)
Weighted
Average
Forward Rate
at Feb. 28,
2005
Weighted
Average
Forward Rate
at Inception
£5,000,000
£5,000,000
£10,000,000
€ 3,000,000
2/13/2004
5/21/2004
1/26/2005
5/21/2004
Range of Maturities
-----------------------------------
11/10/2005
12/14/2005
12/11/2006
2/17/2006
2/17/2006
2/9/2007
Pounds
Pounds
Pounds
Euros
1.8800
1.7900
1.8700
1.2000
1.8949
1.8913
1.8776
1.3344
1.7854
1.7131
1.8228
1.2002
1.9231
1.9231
1.9231
1.3241
Spot Rate at
Contract Date
Spot Rate at
Feb. 28, 2005
Currency
to Deliver
Notional
Amount
Contract Date
2/10/2006
From
To
Contract
Type
February 29, 2004
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Market Value
of the
Contract in
US Dollars
(Thousands)
------------- ------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ------------------ ------------------ ----------------
($888)
Sell
Sell
$46
($141)
Sell
----------------
($983)
==============
Weighted
Average
Forward Rate
at February 29,
2004
£5,000,000 11/18/2003
2/13/2004
£5,000,000
12/2/2003
€ 3,000,000
Weighted
Average
Forward Rate
at Inception
Spot Rate at
February 29,
2004
Range of Maturities
-----------------------------------
Spot Rate at
Contract Date
$1.6950
1.8800
1.2070
$1.8167
1.7763
1.2399
$1.6392
1.7854
1.1928
$1.8666
1.8666
1.2492
11/9/2004
11/10/2005
Pounds
Pounds
Euro's
Currency
to Deliver
2/8/2005
2/17/2006
Notional
Amount
Contract Date
2/8/2005
From
To
Our cash flow hedges, while executed in order to minimize our foreign currency exchange rate risk, do
subject us to fair value fluctuations on the underlying contracts. The following table shows the potential fair
value gain or loss in U.S. Dollars that would arise from a hypothetical 10 percent change as of February 28,
2005 in each hedged currency’s forward rate.
Change in Fair Value Due To
a 10% Movement in Forward Rates
(in thousands)
----------------------------------------------
Favorable
Unfavorable
---------------------- ----------------------
British Pound Hedges
Euro Hedges
$3,771
400
($3,771)
(400)
This table is for risk analysis purposes and does not purport to represent actual losses or gains in fair
46
value that we will incur. It is important to note that the change in value represents the estimated change in the
fair value of the contracts. Because the contracts hedge an underlying exposure, we would expect a similar and
opposite change in foreign exchange gains or losses over the same period as the contract. We expect that as
currency market conditions warrant, and our foreign denominated transaction exposure grows, we will continue
to execute additional contracts in order to hedge against potential foreign exchange losses.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
PAGE
49
50
Consolidated Financial Statements:
Consolidated Balance Sheets as of February 28, 2005 and February 29, 2004
53
Consolidated Statements of Income for each of the years in the three-year period
ended February 28, 2005
Consolidated Statements of Stockholders' Equity and Comprehensive Income for each of
the years in the three-year period ended February 28, 2005
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended February 28, 2005
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, 2005
54
55
56
57
87
All other schedules are omitted as the required information is included in the consolidated financial statements
or is not applicable.
48
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Helen of Troy’s management is responsible for establishing and maintaining adequate internal control
over financial reporting as defined by Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934,
as amended.
Our internal control system was designed by, or under the supervision of, the Company’s principal
executive and principal financial officers, management, and other personnel, with guidance, where appropriate
from the Company’s Board of Directors, to provide reasonable assurance to the Company’s management and
board of directors regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management
and the Board of Directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the Company's assets that could have a material effect on the financial statements.
There are inherent limitations in the effectiveness of any system of internal controls, including the
possibility of human error and the circumvention or overriding of controls. Accordingly, internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risks that controls may become inadequate because of changes in conditions, or
that the degree of compliance with our policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company's internal control over financial
reporting as of February 28, 2005. In making this assessment, the Company’s management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework.
Based on its assessment, management believes that, as of February 28, 2005, the Company's internal
control over financial reporting was effective based on those criteria to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
In conducting our evaluation of the effectiveness of internal control over financial reporting, we have
excluded the operating assets and liabilities and results of operations of OXO International, which we acquired
on June 1, 2004, as permitted by Securities and Exchange Commission rules and regulations. See Note (16) for
a further discussion of the OXO acquisition. The operating assets resulting from this acquisition constituted
approximately 5.2 percent of consolidated assets as of February 28, 2005; and 13.8 percent of consolidated
revenues and 24.5 percent of consolidated operating income for the year then ended.
The Company's independent registered public accounting firm, KPMG LLP, has issued an audit report
on management’s assessment of the Company's internal control over financial reporting. This report appears
on page 51.
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Helen of Troy Limited:
We have audited the accompanying consolidated balance sheets of Helen of Troy Limited and
subsidiaries (the Company) as of February 28, 2005 and February 29, 2004 and the related consolidated
statements of income, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the
three year period ended February 28, 2005. In connection with our audits of the consolidated financial
statements, we also have audited financial statement schedule titled “Schedule II – Valuation and Qualifying
Accounts.” 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 of the Public Company Accounting
Oversight Board (United States). 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, 2005 and February
29, 2004, and the results of their operations and their cash flows for each of the years in the three-year period
ended February 28, 2005, in conformity with U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Company’s internal control over financial reporting as of
February 28, 2005, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 14,
2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal
control over financial reporting. Our audit of internal control over financial reporting of the Company excluded
an evaluation of the internal control over financial reporting of the Company’s Housewares segment containing
the operations of OXO International. OXO International was acquired by the Company during the fiscal year
ended February 28, 2005 and was excluded from its assessment of the effectiveness of the Company’s internal
control over financial reporting as of February 28, 2005.
El Paso, Texas
May 14, 2005
/s/ KPMG LLP
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Helen of Troy Limited:
We have audited management's assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting, that Helen of Troy Limited and subsidiaries (the Company)
maintained effective internal control over financial reporting as of February 28, 2005, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on
the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and Board of Directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over
financial reporting as of February 28, 2005, is fairly stated, in all material respects, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of February 28, 2005, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
51
Helen of Troy Limited acquired OXO International during the fiscal year ended February 2005.
Management excluded from its assessment of the effectiveness of the Company’s internal control over financial
reporting as of February 28, 2005, OXO International’s internal control over financial reporting associated with
total assets of $42,259,000 and net revenues of $80,143,000 included in the consolidated financial statements of
the Company as of and for the year ended February 28, 2005. Our audit of internal control over financial
reporting of the Company also excluded an evaluation of the internal control over financial reporting of OXO
International.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Helen of Troy Limited and subsidiaries as of
February 28, 2005 and February 29, 2004, and the related consolidated statements of income, stockholders’
equity and comprehensive loss, and cash flows for each of the years in the three year period ended February 28,
2005, and our report dated May 14, 2005 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
El Paso, Texas
May 14, 2005
52
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, 2005 and February 29, 2004
(in thousands, except shares and par value)
Assets
Current assets:
Cash and cash equivalents
Trading securities, at market value
Receivables - principally trade, less allowance of $2,167 and $1,100
Inventories
Prepaid expenses
Deferred income tax benefits
Total current assets
Property and equipment, at cost less accumulated depreciation of $31,424 and $27,423
Goodwill, net of accumulated amortization of $7,726
Trademarks, net of accumulated amortization of $220 and $215
License agreements, net of accumulated amortization of $13,074 and $11,634
Other intangible assets, net of accumulated amortization of $1,287
Assets of discontinued operations held for sale
Tax certificates
Other assets
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
Accounts payable, principally trade
Accrued expenses:
Advertising and promotional
Other
Income taxes payable
Total current liabilities
Liabilities of discontinued operations held for sale
Long-term debt, less current portion
Total liabilities
Stockholders' equity
2005
2004
-------------------- --------------------
$
$
21,752
192
111,739
137,475
8,421
7,655
53,048
692
72,801
104,057
7,212
5,930
-------------------- --------------------
243,740
287,234
71,551
201,200
157,716
29,241
17,077
-
28,425
19,005
68,828
35,069
68,361
30,681
-
23,185
3,282
16,463
-------------------- --------------------
$
489,609
============ ============
811,449
$
$
10,000
30,871
$
10,000
15,642
9,392
54,248
26,411
5,114
22,935
23,604
-------------------- --------------------
77,295
130,922
-
260,000
17,211
45,000
-------------------- --------------------
139,506
-------------------- --------------------
390,922
Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued
Common stock, $.10 par. Authorized 50,000,000 shares; 29,830,526 and 29,288,307 shares
-
-
issued and outstanding
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Commitments and contingencies
See accompanying notes to consolidated financial statements.
53
2,983
87,723
331,606
(1,784)
2,929
73,679
274,413
(918)
-------------------- --------------------
350,103
-------------------- --------------------
420,527
$
489,609
============ ============
811,449
$
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expense
Operating income
Other income (expense):
Interest expense
Other income, net
Total other income (expense)
Earnings before income taxes
Income tax expense
Income from continuing operations
Income (loss) from discontinued segment's operations and impairment of
related assets, net of tax benefit (expense) of $442, $8,394 and ($1,252)
Net earnings
Earnings per share:
Basic
Continuing operations
Discontinued operations
Total basic earnings per share
Diluted
Continuing operations
Discontinued operations
Total diluted earnings per share
Weighted average common shares used in computing net earnings per share
Basic
Diluted
2005
Years Ended The Last Day of February,
----------------------------------------------------------------
2004
-------------------- -------------------- --------------------
379,751
$
224,027
-------------------- -------------------- --------------------
155,724
474,868
257,651
581,549
307,045
274,504
217,217
$
$
2003
172,480
105,522
-------------------- -------------------- --------------------
50,202
-------------------- -------------------- --------------------
102,024
131,443
85,774
(12,445)
(4,047)
4,312
(9,870)
(2,575)
(3,965)
2,333
-------------------- -------------------- --------------------
(1,632)
-------------------- -------------------- --------------------
48,570
10,778
-------------------- -------------------- --------------------
37,792
89,579
12,907
86,039
14,477
76,672
71,562
265
(222)
924
-------------------- -------------------- --------------------
$
38,716
============ ============ ============
$
$
(11,040)
76,450
60,522
$
$
$
2.58
(0.01)
2.57
$
$
$
2.52
(0.39)
2.13
$
$
$
1.34
0.03
1.37
$
$
$
2.36
(0.01)
2.35
$
$
$
2.29
(0.35)
1.94
$
$
$
1.28
0.03
1.31
29,710
32,589
28,356
31,261
28,189
29,548
See accompanying notes to consolidated financial statements.
54
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years Ended The Last Day of February, 2005, 2004, and 2003
(in thousands)
Balances February 28, 2002
Net earnings
Exercise of common stock
options, net
Issuance of common stock
in connection with employee
stock purchase plan
Cancellation of stock recovered from escrow
Balances February 28, 2003
Components of comprehensive income:
Net earnings
Unrealized loss on cash flow hedging derivatives
Total comprehensive income
Exercise of common stock
Other
Compre-
hensive
(Loss)
----------------- ----------------- ----------------- ----------------- -----------------
250,326
$ -
$
Retained Stockholders'
Earnings
Additional
Paid-In
Capital
Common
Stock
194,082
Equity
53,424
Total
2,820
$
$
$
-
3
-
336
-
-
38,716
38,716
-
339
2
(5)
219
5
-
-
-
-
221
-
----------------- ----------------- ----------------- ----------------- -----------------
289,602
232,798
53,984
2,820
-
-
-
-
-
-
(918)
60,522
-
60,522
(918)
-----------------
59,604
-----------------
options, including tax benefits of $8,045
187
21,036
Issuance of common stock
in connection with employee
stock purchase plan
Acquisition and retirement of
common stock
Balances February 29, 2004
-
-
-
-
21,224
246
2
245
(81)
(20,572)
----------------- ----------------- ----------------- ----------------- -----------------
350,103
(18,906)
274,413
(1,586)
73,679
2,929
(918)
-
Components of comprehensive income:
Net earnings
Change in value of stock available for sale
Reclassification of losses to income
Unrealized loss on cash flow hedging derivatives
Total comprehensive income
Elimination of minority interest upon sale of Tactica
Exercise of common stock
-
-
-
-
-
-
-
-
-
-
options, including tax benefits of $8,301
129
16,747
Issuance of common stock
in connection with employee
stock purchase plan
Acquisition and retirement of
common stock
Balances February 28, 2005
-
2,610
(2,610)
(866)
-
-
-
76,450
-
-
-
76,450
2,610
(2,610)
(866)
-----------------
75,584
-----------------
2,679
2,679
-
-
16,876
324
2
322
(77)
(25,039)
----------------- ----------------- ----------------- ----------------- -----------------
$
420,527
========== ========== ========== ========== ==========
(21,937)
331,606
(1,784)
(3,025)
87,723
$
2,983
$
$
$
-
See accompanying notes to consolidated financial statements.
55
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Years Ended The Last Day of February,
----------------------------------------------------------------
2004
-------------------- -------------------- --------------------
2003
2005
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
$
76,450
$
60,522
$
38,716
Depreciation and amortization
Provision for doubtful receivables
Purchases of trading securities
Proceeds from sales of trading securities
Realized gain - trading securities
Unrealized (gain) loss - trading securities and securities held for sale
Deferred taxes, net
Gain on disposal of property, plant, and equipment
Loss (earnings) from operations of discontinued segment
Loss from impairment of goodwill of discontinued segment
Changes in operating assets and liabilities:
9,708
1,067
-
-
-
3,410
(1,725)
(180)
222
-
6,128
38
(197)
1,252
(223)
(82)
(1,791)
-
7,279
3,761
6,422
719
(3,487)
2,258
(157)
90
684
(58)
(924)
-
Accounts receivable
Inventories
Prepaid expenses
Prepayment of royalties
Purchase of Tax Certificates
Other assets
Accounts payable
Accrued expenses
Income taxes payable
Net cash provided by operating activities
Cash flows from investing activities:
Capital, license, trademark, and other intangible expenditures
Proceeds from sales of property, plant, and equipment
Increase in other assets
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from debt
Repayment of short-term acquisition financing
Repayment of long-term debt
Payment of financing costs
Proceeds from exercise of stock options and employee stock purchases, net
Common stock repurchases
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow disclosures:
Interest paid
Income taxes paid (net of refunds)
Common stock received as exercise price of options
(37,473)
(33,418)
(1,209)
(1,689)
(25,144)
2,362
15,229
26,203
11,554
5,084
(5,967)
(5,226)
(11,500)
-
5,392
8,863
2,565
3,865
-------------------- -------------------- --------------------
47,339
-------------------- -------------------- --------------------
(15,674)
(3,279)
253
(5,251)
(3,282)
6,397
(721)
10,254
3,534
68,918
45,368
(286,263)
7,068
81
(59,596)
536
1,109
-------------------- -------------------- --------------------
(57,951)
-------------------- -------------------- --------------------
(65,120)
80
1,580
(279,114)
(63,460)
425,000
(200,000)
(10,000)
(4,429)
3,122
(11,242)
0
0
0
0
0
0
-
8,026
(7,877)
-
560
-
149
202,451
-------------------- -------------------- --------------------
560
-------------------- -------------------- --------------------
(10,052)
57,493
-------------------- -------------------- --------------------
$
47,441
============ ============ ============
(31,295)
53,048
5,607
47,441
$
$
53,048
21,752
$
$
$
8,589
4,395
5,758
$
$
$
4,131
2,319
5,400
$
3,890
5,025
$
$
-
See accompanying notes to consolidated financial statements.
56
NOTE 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 an expanding portfolio of brand-name consumer products. We currently manage and report
on our business in two active segments: Personal Care and Housewares. The Personal Care segment’s
products include hair dryers, straighteners, curling irons, hairsetters, mirrors, hot air brushes, home hair
clippers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs, hair accessories,
liquid hair styling products, body powder and skin care products. The Housewares segment is new this year
and reports the operations of OXO International (“OXO”), which we acquired on June 1, 2004, as further
discussed in Notes (4),(5), (6) and (16) to our consolidated financial statements. The Houseware segment’s
products include kitchen tools, household cleaning tools, storage and organization products, and gardening
tools. Both operating segments sell their portfolio of products; principally through mass merchants, general
retail and specialty retail outlets in the United States and other countries. We purchase our products from
unaffiliated manufacturers, most of which are located in The People's Republic of China, Thailand, Taiwan,
South Korea, and the United States.
Our financial statements are prepared in U.S. Dollars and in accordance with U.S. generally accepted
accounting principles. 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. We have reclassified certain prior-year amounts
to conform to this year's presentation.
(b) Consolidation
Our consolidated financial statements include the accounts of Helen of Troy Limited and its subsidiaries.
Tactica International, Inc. ("Tactica"), a subsidiary in which we acquired a 55 percent interest in fiscal 2001,
has been presented as a discontinued operation in accordance with the requirements of Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets.” Accordingly, the consolidated balance sheet for the year ended February 29, 2004 presents
Tactica's total assets in the line "Assets of discontinued operation held for sale", and its total liabilities in the
line "Liabilities of discontinued operations held for sale.” As more fully described in Note (15) to our
consolidated financial statements, on April 29, 2004 we completed the sale of our ownership interest in
Tactica back to certain of its key operating manager-shareholders. For the periods presented through the
date of Tactica’s sale, our consolidated net income included 100 percent of Tactica's net income or loss
because the minority interest in Tactica's accumulated deficit had not been extinguished. We eliminate
intercompany balances and transactions in consolidation.
(c) Revenue recognition
Sales are recognized when revenue is realized or realizable and has been earned. Sales and shipping terms
vary among our customers, and, as such, revenue is recognized when risk and title to the product transfer to
the customer. Net sales is comprised of gross revenues less estimates of expected returns, trade discounts,
and customer allowances, which include incentives such as cooperative advertising agreements and off-
invoice markdowns. Such deductions are recorded and/or amortized during the period the related revenue is
recognized.
57
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) Consideration paid to customers
We offer our customers certain incentives in the form of cooperative advertising arrangements, volume
rebates, product markdown allowances, trade discounts, cash discounts, and slotting fees. We account for
these incentives in accordance with Emerging Issues Task Force Issue No. 01-9, "Accounting for
Consideration Given by a Vendor to a Customer" ("EITF 01-9"). In instances where the customer is
required to provide us with proof of performance, reductions in amounts received from customers as a result
of cooperative advertising programs are included in our consolidated statement of income on the line
entitled "Selling, general, and administrative expenses" ("SG&A"). Other reductions in amounts received
from customers as a result of cooperative advertising programs are recorded as reductions of net sales.
Markdown allowances, slotting fees, trade discounts, cash discounts, and volume rebates are all recorded as
reductions of net sales. Customer incentives included in SG&A were $13,869,000, $16,603,000, and
$14,942,000, for the fiscal years 2005, 2004, and 2003, respectively.
(e) Inventories and cost of sales
Our inventories consist almost entirely of finished goods. We account for inventory using a first-in-first-out
system in which we record inventory on our balance sheet at the lower of our average cost or net realizable
value. A product's average cost is comprised of the amount that we pay our manufacturer for product, tariffs
and duties associated with transporting product across national borders, freight costs associated with
transporting the product from our manufacturers to our warehouse locations, and general and administrative
expenses directly attributable to the procurement of inventory.
General and administrative expenses in inventory include all the expenses of operating the Company's Hong
Kong and Macao sourcing facilities, expenses incurred for production forecasting, and expenses incurred for
product design, engineering and packaging. We charged $11,082,000, $11,373,000, and $10,195,000 of
such general and administrative expenses to inventory during fiscal years 2005, 2004, and 2003,
respectively. We estimate that $4,192,000 and $4,745,000 of general and administrative expenses directly
attributable to the procurement of inventory were included in our inventory balances on hand at fiscal year
ends 2005 and 2004, respectively. When circumstances dictate that we use net realizable value in lieu of
cost, we base our estimates on expected future selling prices less expected disposal costs.
The "Cost of sales" line item on the consolidated statements of income is comprised of the book value
(lower of average cost or net realizable value) of inventory sold to customers during the reporting period.
(f) Shipping and handling revenues and expenses
Shipping and handling expenses are included in our consolidated statements of income on the "Selling,
general, and administrative expenses" line. Our expenses for shipping and handling totaled $38,355,000,
$32,701,000, and $24,489,000 during the fiscal years ended 2005, 2004, and 2003, respectively.
We report revenue from shipping and handling charges on the "Net sales" line of our consolidated
statements of income, in accordance with paragraph 5 of Emerging Issues Task Force Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." We only include charges for shipping and
handling in "Net sales" for sales made directly to consumers and retail customers ordering relatively small
dollar amounts of product. Our shipping and handling expenses far exceed our shipping and handling
revenues.
58
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(g) Valuation of accounts receivable
Our allowance for doubtful receivables reflects our best estimate of probable losses, determined principally
on the basis of historical experience and specific allowances for known troubled accounts.
(h) Property and equipment
These assets are stated at cost. Depreciation is recorded primarily on a straight-line basis over the estimated
useful lives of the assets. Expenditures for repair and maintenance of property and equipment are expensed
as incurred. For tax purposes, accelerated depreciation methods are used as allowed by tax laws.
(i) License agreements, trademarks, patents and other intangible assets.
A significant portion of our sales are made subject to license agreements with the licensors of the Vidal
Sassoon®, Revlon®, Sunbeam®, Health at Home®, Health o meter® and Dr. Scholl's® trademarks. Our
license agreements are reported on the Company's consolidated balance sheets at cost, less accumulated
amortization. The cost of our license agreements represents amounts paid to licensors to acquire the license
or to alter the terms of the license in a manner which we believe to be in our best interest. Royalty payments
are not included in the cost of license agreements. We amortize license costs on a straight-line basis over the
appropriate lives of the respective agreements. Net sales subject to license agreements comprised 56
percent, 64 percent, and 71 percent of total consolidated net sales for fiscal years 2005, 2004, and 2003,
respectively. Royalty expense under our license agreements is recognized as incurred and is included in our
consolidated statements of income on the "Selling, general, and administrative expenses" line.
We also sell products under trademarks that we own. Trademarks that we acquire from other entities are
recorded on our consolidated balance sheets based upon the appraised cost of acquiring the trademark, net
of any accumulated amortization. Costs associated with developing trademarks internally are recorded as
expenses in the period incurred. When trademarks have readily determinable useful lives, we amortize their
costs on a straight-line basis over such lives. In certain instances, we have determined that particular
trademarks have an indefinite useful life. In these cases, no amortization is recorded.
Patents acquired through purchase from other entities, if material are recorded on our consolidated balance
sheets based upon the appraised cost of the acquired patents and amortized over the remaining life of the
patent in the jurisdiction filed. Additionally, we incur certain internal costs, primarily legal fees in
connection with the design, development and filing of patents on new products under development which
are capitalized as incurred and amortized on a straight-line basis over the life of the patent in the jurisdiction
filed, typically 14 years.
Other Intangible assets include customer lists and a non-compete agreement that we acquired from other
entities. These are recorded on our consolidated balance sheets based upon the appraised cost of the
acquired asset and amortized on a straight-line basis over the remaining life of the asset as determined either
through outside appraisal (customer lists) or the term of the non-compete agreement.
See Notes (3) and (4) for additional information on our intangible assets.
59
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(j) Income taxes
We use 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
applicable assets and liabilities. Generally, deferred tax assets represent future income tax reductions while
deferred tax liabilities represent income taxes that we expect to pay in the future. We measure deferred tax
assets and liabilities using enacted tax rates for the years in which we expect temporary differences to be
reversed or be settled. Changes in tax rates affect the carrying values of our deferred tax assets and
liabilities. The effects of any tax rate changes are recognized in the periods where they become effective.
(k) Earnings per share
We compute basic earnings per share based upon the weighted average number of common shares
outstanding during the period. We compute diluted earnings per share based upon the weighted average
number of common shares plus the effects of potentially dilutive securities. Our dilutive securities consist
entirely of stock options.
The number of potentially dilutive securities was 2,879,000, 2,905,000 and 1,359,000 for fiscal years 2005,
2004, and 2003, respectively. 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 our common stock totaled 40,500, -0- and 4,162,662 for fiscal 2005, 2004, and
2003, respectively.
(l) Cash equivalents
We consider all highly liquid debt instruments purchased with an original maturity of three months or less to
be cash equivalents. Cash equivalents comprised $17,530,000 and $31,159,000 of the amount reported on
our consolidated balance sheets as "Cash and cash equivalents" at fiscal year ends 2005 and 2004,
respectively. Our cash equivalents consist primarily of variable rate demand bonds that mature in 35 or
fewer days.
(m) Trading securities and stock available for sale
Trading securities consist of shares of common stock of publicly traded companies and are stated on our
consolidated balance sheets at market value, as determined by the most recent trading price of each security
as of the balance sheet date. We determine the appropriate classification of our investments when those
investments are purchased and reevaluate those determinations at each balance sheet date. At February 28,
2005, we held investments in equity securities of unaffiliated companies for the purpose of trading them in
the near term. Therefore, certain investments in equity securities are classified as trading securities and
included in the "Current assets" section of our consolidated balance sheets. All unrealized gains and losses
attributable to such securities are included in "Other income" on the consolidated statements of income.
In connection with the sale of Tactica, as further discussed in Note (15) to these consolidated financial
statements, we acquired certain marketable securities; which carry a restriction that prevents us from
disposing of the stock prior to July 31, 2005. Accordingly, we have classified this stock as available for
sale, which is included in the “Other assets” section of our consolidated balance sheets. If gains or losses on
stock available for sale are considered temporary, they are recognized as an element of “Other
60
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
comprehensive income” in our consolidated statement of stockholder’s equity and comprehensive
income. If losses are incurred which are considered other-than-temporary, they are included as an
unrealized loss in “Other income” in our consolidated statements of income. The stock available for sale
had a market value at acquisition of $3,030,000. As of February 28, 2005, this stock had a market value of
$120,000. In the third fiscal quarter of 2005, management determined the decline in market value to be
other-than-temporary and accordingly reversed the accumulated other comprehensive losses taken to date
and began recording unrealized losses on the stock. For fiscal 2005, the total unrealized loss on stock
available for sale was $2,910,000.
The sum of unrealized and realized net gains and (losses) attributable to trading securities totaled
($500,000), $311,000, and $67,000 in fiscal 2005, 2004, and 2003, respectively.
(n) Foreign currency transactions and derivative financial instruments
The U.S. Dollar is our functional currency. All our non-U.S. subsidiaries' transactions involving other
currencies have been re-measured in U.S. Dollars using average exchange rates for the months in which the
transactions occurred. Changes in exchange rates that affect cash flows and the related receivables or
payables are included as part of the totals on our consolidated statements of income on the line entitled
"Selling, general, and administrative expenses.” Our foreign exchange gains/(losses), including the impact
of currency hedges totaled ($1,142,000), $1,216,000 and $1,638,000 during the fiscal years ended 2005,
2004, and 2003, respectively.
In order to manage our exposure to changes in foreign currency exchange rates, we use forward currency
contracts to exchange foreign currencies for U.S. Dollars at specified rates. We first entered into such
contracts in fiscal 2003. We account for these transactions in accordance with Statement of Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires that these forward currency contracts be recorded on the balance sheet at their fair value
and that changes in the fair value of the forward exchange contracts are recorded each period in our
consolidated statements of income or our consolidated statement of stockholders' equity and comprehensive
income, depending on the type of hedging instrument and the effectiveness of the hedges. In our case, we
record these transactions on the line entitled "Selling, general, and administrative expenses" in our
consolidated statements of income, or the line entitled "Unrealized loss on cash flow hedging derivatives" in
our consolidated statement of stockholders' equity and comprehensive income, as appropriate. All our
current contracts are highly effective cash flow hedges and are adjusted to their fair market values at the end
of each calendar quarter. We evaluate all hedging transactions each quarter to determine that they are
highly effective. Any ineffectiveness is recorded in our consolidated statements of income. See Note (13) to
these consolidated financial statements for a further discussion of our hedging activities.
(o) Advertising
Advertising costs are expensed in the fiscal year in which they are incurred and included in our consolidated
statements of income on the "Selling, general, and administrative expenses" line. We incurred advertising
costs of $25,559,000, $27,106,000 and $20,133,000 during the fiscal years ended 2005, 2004, and 2003,
respectively.
61
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(p) Warranties
Our products are under warranty against defects in material and workmanship for a maximum of two years.
We have established accruals to cover future warranty costs of approximately $5,767,000 and $4,114,000 as
of fiscal year ends 2005 and 2004, respectively. We estimate our warranty accrual using historical trends
and believe that these trends are the most reliable method by which we can estimate our warranty liability.
The following table summarizes the activity in the Company's accrual for the past three fiscal years:
ACCRUAL FOR WARRANTY RETURNS
(in thousands)
FISCAL YEAR
ENDED FEBRUARY balance
Beginning
Additions to
accrual
2005
2004
2003
Ending balance
-------------------- -------------------- -------------------- --------------------
$ 4,114
5,767
4,114
$
3,263
3,263
$
3,428
$
$
$
$
$
$
$
$
$
19,880
15,848
12,408
18,227
14,996
12,573
Reductions of
accrual -
payments and
credits issued
Certain entities whose financial statements are a part of these consolidated financial statements have
guaranteed obligations of other entities within the consolidated group. FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" requires disclosure of these guarantees, of our product warranty liabilities, and of
various indemnity arrangements to which we are a party. Additional disclosures related to this policy are
contained in Notes (5), (6) and (9) to these consolidated financial statements.
(q) Carrying value of long-lived assets
We apply the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") in assessing the carrying values of our
long-lived assets. SFAS 142 and SFAS 144 both require that we consider whether circumstances or
conditions exist that suggest that the carrying value of a long-lived asset might be impaired. If such
circumstances or conditions exist; further steps are required in order to determine whether the carrying value
of the asset exceeds its fair market value. If the analyses indicate that the asset's carrying value does exceed
its fair market value, the next step is to record a loss equal to the excess of the asset's carrying value over its
fair value. In fiscal 2005, we did not record any charges for impairment of long-lived assets. In fiscal 2004,
we recorded a goodwill impairment charge in connection with the discontinued operations of our Tactica
segment, as more fully described in Note (15) to our consolidated financial statements.
(r) Economic useful lives and amortization of intangible assets
We apply Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") in determining the useful economic lives of intangible assets that we acquire and report on
our consolidated balance sheets. SFAS 142 requires that we amortize intangible assets, such as licenses and
trademarks, over their economic useful lives, unless those assets' economic useful lives are indefinite. If an
intangible asset's economic useful life is deemed to be indefinite, that asset is not amortized. When we
62
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
acquire an intangible asset, we consider factors such as the asset's history, our plans for that asset, and the
market for products associated with the asset. We consider these same factors when reviewing the economic
useful lives of our existing intangible assets as well. We review the economic useful lives of our intangible
assets at least annually.
Intangible assets consist primarily of goodwill, license agreements, trademarks, customer lists and patents.
We amortize certain intangible assets using the straight-line method over appropriate periods ranging from
five to forty years. We recorded intangible asset amortization totaling $2,732,000, $1,445,000 and
$1,330,000 during fiscal 2005, 2004 and 2003, respectively. See Notes (3) and (4) to these consolidated
financial statements for more information about our intangible assets.
(s) Interest income
Interest income is included in "Other income, net" on the consolidated statements of income. Interest
income totaled $359,000, $438,000 and $1,088,000 in fiscal 2005, 2004, and 2003, respectively.
(t) 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. See Note (6) for
our assessment of the fair value of our guaranteed Senior Notes. We hedge a portion of our foreign
exchange rate risk by entering into contracts to exchange foreign currencies for U.S. Dollars at specified
rates. The fair value of such contracts is determined in accordance with Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." See Note (13) for
more information on our hedging activities.
(u) Stock-based compensation plans
Statement of Financial Accounting Standards No. 123 (“SFAS 123”) and No. 123R (“SFAS 123R”),
"Accounting for Stock-Based Compensation," currently encourage, but do not require companies to record
compensation expense for stock-based compensation plans at fair value. We have chosen to account for our
stock-based compensation plans using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, we
recognize no expense in connection with our stock-based compensation plans, as all stock option grants are
made at market value on the date of grant. Income tax benefits attributable to stock options exercised
are credited to "Additional paid-in-capital." In fiscal 2005, we credited $8,301,000 of tax benefits arising
from such exercise. In fiscal 2004, we credited $8,045,000 of tax benefits arising from such exercise.
Disclosures about the Company's stock-based compensation plans are included in Note (8) to these
consolidated financial statements.
As further discussed under “New accounting guidance” below, we plan to change our method of accounting
to comply with new requirements of SFAS 123R, which will require expensing of the fair value of options
granted over the vesting lives of the options. This change will not take place until March 1, 2006, the start
of our fiscal 2007 year.
63
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(v) New accounting guidance
In December 2004, the FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets—an amendment of
APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,”
is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value
of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that
principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. The provisions of this
Statement will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The adoption of SFAS 153 is not expected to have a material impact on our financial condition,
results of operations, or cash flows.
In March 2004, the EITF reached a consensus on EITF Issue No. 03-1 ("EITF 03-1"), "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments," for which the measurement
and recognition provisions were to be effective for reporting periods beginning after June 15, 2004.
However, in September 2004, the EITF issued FASB Staff Position EITF Issue No. 03-1-1, "Effective Date
of Paragraphs 10-20 of EITF Issue No. 03-1, `The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments,'" which postponed the measurement and recognition provisions of EITF
03-1, but maintained the disclosure requirements for all investments within the scope of the guidance to be
effective in annual financial statements for fiscal years ending after June 15, 2004. EITF 03-1 provides a
three-step process for determining whether investments, including equity securities, are other than
temporarily impaired and requires additional disclosures in annual financial statements. An investment is
impaired if the fair value of the investment is less than its cost. EITF 03-1 outlines that an impairment would
be considered other-than-temporary unless: a) the investor has the ability and intent to hold an investment
for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the
investment, and b) evidence indicating that the cost of the investment is recoverable within a reasonable
period of time outweighs evidence to the contrary. In addition, the severity and duration of the impairment
should also be considered in determining whether the impairment is other-than-temporary. We have applied
the guidance provided by EITF 03-1 and determined that certain recent declines in the market value of
securities acquired in connection with the sale of Tactica as discussed in Notes (1) and (15) to our
consolidated financial statements were “other-than-temporary”, and recorded the appropriate recognition of
a loss in our fiscal 2005 operating results.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4" (FAS
151). FAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and
handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. The
provisions of FAS 151 are effective for fiscal years beginning June 15, 2005 or later. Management is
currently evaluating the provisions of FAS 151 and does not expect that the adoption will have a material
impact on the Company's consolidated financial position or results of operations.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123R "Share-Based Payment" which revises SFAS No. 123, Accounting
for Stock-Based Compensation, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” The statement addresses the accounting for share-based payment transactions (for example,
64
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
stock options and awards of restricted stock) in which an employer receives employee-services in exchange
for equity securities of the company or other rights to receive future compensation that are based on the fair
value of the company’s equity securities. The statement eliminates the use of APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and generally requires such transactions be accounted for
using a fair-value-based method and recording compensation expense rather than an optional pro forma
disclosure of what expense amounts might be. The provisions of SFAS 123R are effective for public
companies at the beginning of their first annual period beginning after June 15, 2005. We expect to adopt
SFAS No. 123R on March 1, 2006.
SFAS No. 123R permits public companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS No. 123R for all awards granted
to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective
date; or
2. A "modified retrospective" method which includes the requirements of the modified prospective
method described above, but also permits entities to restate based on the amounts previously
recognized under SFAS No. 123R for purposes of pro forma disclosures either (a) all prior periods
presented or (b) prior interim periods of the year of adoption.
The adoption of SFAS No. 123R’s fair value method will have an impact on our results of operations,
although it will have an insignificant impact on our overall financial position. At February 28, 2005, we had
24,486 options available for issue under our employee stock option plan, and 336,000 options available for
issue under our non-employee director’s stock option plan. The director’s stock option plan is set to
terminate in June 2005, so effectively; we plan to issue only 56,000 options under this plan. Based upon our
analysis of the current stock option plans in place, and assuming no further modifications to these plans, the
estimated impact of adopting SFAS No. 123R for fiscal 2007 (fiscal year of adoption) will be to add
approximately $856,000 net of tax benefits, to our annual operating expense. 123R also requires the
benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash
flow, rather than as an operating cash flow as required under current literature. This requirement will reduce
net operating cash flows and increase net financing cash flows in periods after adoption. We cannot estimate
what those amounts will be in the future (because they depend on, among other things, when employees
exercise stock options).
In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-2, “Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Job Creation Act of 2004.”
FSP No. 109-2 amends the existing accounting literature that requires companies to record deferred taxes on
foreign earnings, unless they intend to indefinitely reinvest those earnings outside the U.S. This
pronouncement temporarily allows companies that are evaluating whether to repatriate foreign earnings
under the American Jobs Creation Act of 2004 to delay recognizing any related taxes until that decision is
made. This pronouncement also requires companies that are considering repatriating earnings to disclose the
status of their evaluation and the potential amounts being considered for repatriation. The U.S. Treasury
Department has not issued final guidelines for applying the repatriation provisions of the American Jobs
Creation Act. We continue to evaluate this legislation and FSP No. 109-2 to determine whether we will
65
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
repatriate any foreign earnings and the impact, if any, that this pronouncement will have on our consolidated
financial statements.
NOTE 2 - PROPERTY AND EQUIPMENT
A summary of property and equipment (in thousands) was as follows:
Land
Building and improvements
Computer and other equipment
Molds and tooling
Transportation equipment
Furniture and fixtures
Construction in process
Information system under development
Less accumulated depreciation
Property and equipment, net
Estimated
Useful Lives
(Years)
Last day of February,
------------------------------------------
2004
$
$
-
20 - 40
3 - 5
1 - 3
3 - 5
5 - 15
-
-
2005
-------------------- -------------------- --------------------
12,123
45,868
11,287
10,462
3,741
7,247
-
5,523
-------------------- --------------------
96,251
(27,423)
-------------------- --------------------
68,828
$
============ ============
8,658
44,357
23,330
13,613
3,840
8,127
750
300
102,975
(31,424)
$
71,551
We recorded $5,025,000, $3,653,000 and $4,049,000 of depreciation expense for fiscal 2005, 2004, and 2003,
respectively. Capital expenditures totaled $14,663,000, $13,805,000 and $19,294,000 in fiscal 2005, 2004, and
2003, respectively.
We lease 108,000 square feet of warehouse space, as well as various administrative office spaces, from a real-
estate partnership in which our Chief Executive Officer and another member of our Board of Directors are
limited partners. During fiscal 2005, 2004, and 2003, we paid this real-estate partnership rentals of $526,000
$454,000, and $614,000.
During fiscal 2005, molds and tooling having a net book value of $124,000 at February 29, 2004, were
reclassified from “Other assets” to “Property and equipment.” The acquisition of OXO International (“OXO”)
accounted for most of the increase in the net book value of molds since February 29, 2004. Given the scope
and nature of OXO’s activities, management now believes this reclassification to be a more appropriate
characterization of the nature of the assets acquired and has reclassified all previously acquired similar assets
accordingly. See Note (16) for a further discussion of the OXO acquisition.
66
NOTE 3 - INTANGIBLE ASSETS
The following table is a summary, by operating segment, of the carrying amounts and associated accumulated
amortization for our intangible asset balances as of February 28, 2005 and February 29, 2004.
INTANGIBLE ASSETS
(in thousands)
Type / Description
Segment
Estimated
Life
February 28, 2005
-------------------------------------------------------
Accumulated
Carrying Amortization Carrying
Amount
(if Applicable) Amount
Gross
Net
February 29, 2004
-------------------------------------------------------
Accumulated
Carrying Amortization Carrying
(if Applicable) Amount
Amount
Gross
Net
--------------------------------------------------- ------------------ ---------------- ----------------- ------------------ -----------------
----------------- ------------------ -----------------
Goodwill:
OXO
All other goodwill
Trademarks:
Housewares
Personal Care
Indefinite
Indefinite
$
166,131
42,795
208,926
$
-
(7,726)
(7,726)
$
166,131
35,069
201,200
$
-
42,795
42,795
$
-
(7,726)
(7,726)
$
-
35,069
35,069
OXO
Brut
All other trademarks - definite lives
All other trademarks - indefinite lives
Housewares
Personal Care
Personal Care
Personal Care
Indefinite
Indefinite
[1]
Indefinite
Licenses:
Seabreeze
All other licenses
Personal Care
Indefinite
Personal Care 8 - 25 Years
75,200
51,317
338
31,081
157,936
18,000
24,315
42,315
-
-
(220)
-
(220)
-
(13,074)
(13,074)
75,200
51,317
118
31,081
157,716
18,000
11,241
29,241
-
51,317
338
16,922
68,577
18,000
24,315
42,315
-
-
(216)
-
(216)
-
(11,634)
(11,634)
-
51,317
122
16,922
68,361
18,000
12,681
30,681
Other:
Patents, customer lists & non-compete
agreements
Total
Housewares
2 - 13 Years
18,364
(1,287)
17,077
-
-
-
$
427,541
$
(22,307)
$
405,234
$
153,687
$
(19,576)
$
134,111
[1] Includes one fully amortized trademark and one trademark with an estimated life of 30 years
During fiscal 2005, we reclassified $17,717,000 from Brut® goodwill to Brut® trademarks having an indefinite
life and have reclassified this amount in the February 29, 2004 consolidated balance sheet and related schedules
accordingly. The reclassification has no impact on the consolidated statements of income. Management
believes this reclassification to be a more appropriate characterization of the nature of the acquisition costs paid
for the Brut® brand.
67
NOTE 3 - INTANGIBLE ASSETS, CONTINUED
The following table summarizes the amortization expense attributable to intangible assets for the years ending
on the last day of February 2005, 2004, and 2003, as well as estimated amortization expense for the fiscal years
ending the last day of February 2006 through 2010.
Aggregate Amortization Expense
For the twelve months ended
--------------------------------------------------------------
February 28, 2005
February 29, 2004
February 28, 2003
Estimated Amortization Expense
For the fiscal years ended
--------------------------------------------------------------
February 2006
February 2007
February 2008
February 2009
February 2010
(in thousands)
$
$
$
2,732
1,445
1,330
$
$
$
$
$
3,152
2,931
2,857
2,807
2,513
Many of the license agreements under which the Company sells or intends to sell products with trademarks
owned by other entities require that we pay minimum royalties and make minimum levels of advertising
expenditures. For the fiscal year ending February 28, 2006, minimum royalties due and minimum advertising
expenditures under these agreements total $3,595,000 and $6,875,000, respectively.
NOTE 4 - ACQUISITION OF TRADEMARKS AND OF RIGHTS UNDER LICENSE AGREEMENTS
On October 21, 2002, we acquired from The Procter & Gamble Company the right to sell products under six
trademarks. We acquired all rights to the trademarks and certain rights to the formulas and production processes
for four of the six trademarks: Ammens®, Vitalis®, Condition 3-in-1®, and Final Net®. The Procter &
Gamble Company also assigned to us its rights under licenses to sell products for two additional trademarks,
Sea Breeze® and Vitapointe®. The Sea Breeze® license is perpetual. We have completed an analysis of the
economic lives of the trademarks acquired and believe these trademarks to have indefinite economic lives
except for the Vitapointe® license. We have determined that the license covering the Vitapointe® trademark
has an economic life equal to its initial term through December 2010 and are currently amortizing the intangible
asset over that period. We recorded amortization expense on the Vitapointe® license of $255,000 and
$128,000 for the fiscal years ended February 28, 2005 and February 29, 2004, respectively.
On September 29, 2003, we acquired certain assets related to the Western Hemisphere production and
distribution of Brut® fragrances, deodorants, and antiperspirants from Sonoco, Inc., a wholly owned subsidiary
of Unilever NV. The assets consist principally of patents, trademarks, and trade names, product formulations
and production technology, related finished goods inventories, distribution rights, and customer lists. We paid
$55,255,000 in cash in the transaction. The transaction was funded with $32,000,000 drawn against a short-term
revolving credit facility with Bank of America, and $23,255,000 of cash on hand. We completed our analysis of
the economic lives of all the assets acquired and determined the appropriate allocation of the initial purchase
price. Based upon our analysis, we allocated $51,317,000 to trademarks having an indefinite economic life,
$3,725,000 to inventory, and $213,000 to fixed assets.
In the first fiscal quarter of 2005, as part of the proceeds of our sale of Tactica, we recorded $2,255,000 for the
Epil Stop® trademark, which we believe to have an indefinite useful life (see Note 13).
68
NOTE 4 - ACQUISITION OF TRADEMARKS AND OF RIGHTS UNDER LICENSE
AGREEMENTS, CONTINUED
On June 1, 2004, we acquired certain assets and liabilities of OXO International ("OXO") for a net cash
purchase price of approximately $273,173,000 including the assumption of certain liabilities. The acquisition
was funded through a combination of short-term and long-term debt as further discussed in Notes (5) and (6) to
these consolidated financial statements. In the acquisition, we recorded goodwill of $165,388,000
(subsequently adjusted to $166,131,000), additional trademarks with indefinite useful lives (and thus not subject
to amortization) of $75,200,000, and other intangible assets totaling $17,990,000 (subsequently adjusted to
$18,364,000). "Other intangible assets" are subject to amortization over varying lives ranging from 2 to 13
years and consist of patents, customer lists and a non-compete agreement. These allocations reflect the
completion of our analysis of the economic lives of the assets acquired and appropriate allocation of the initial
purchase price based upon independent appraisals. We believe that the OXO acquisition resulted in recognition
of goodwill primarily because of its industry position, management strength, and business growth potential. See
Note (16) for a further discussion of the OXO acquisition.
On September 29, 2004, we acquired certain assets related to the worldwide production and distribution of
TimeBlock® and Skin Milk® body and skin care products lines from Naterra International, Inc. TimeBlock® is
a line of clinically tested anti-aging skin care products. Skin Milk® is a line of body, bath and skin care
products enriched with real milk proteins, vitamins and botanical extracts. The assets consist principally of
patents, trademarks and trade names, product formulations and production technology, distribution rights, and
customer lists. The Company paid the purchase price of $12,001,000 in cash funded out of the Company's
revolving line of credit. The purchase price was allocated $11,906,000 to trademarks and $95,000 to property
and equipment. The allocations above reflect the completion of our analysis of the economic lives of the assets
acquired and appropriate allocation of the initial purchase price based upon independent appraisals.
NOTE 5 – SHORT-TERM DEBT
On September 22, 2003, certain subsidiaries of the Company entered into a $50,000,000 unsecured revolving
credit facility with Bank of America to facilitate short-term borrowings and the issuance of letters of credit. All
borrowings accrued interest equal to the higher of the Federal Funds Rate plus 0.50 percent or Bank of
America's prime rate. Alternatively, with timely election, borrowings could accrue interest based on the
respective 1, 2, 3, or 6-month LIBOR rate plus 0.75 percent (based upon the term of the borrowing). The credit
facility allowed for the issuance of letters of credit up to $10,000,000. Outstanding letters of credit reduced the
$50,000,000 borrowing limit dollar for dollar. The credit agreement required the maintenance of certain
Debt/EBITDA, fixed charge coverage ratios, and other customary covenants. We were in compliance with all
these requirements. The agreement was guaranteed, on a joint and several basis, by our parent company, Helen
of Troy Limited, and certain U.S. subsidiaries. This credit facility was cancelled effective June 1, 2004.
On June 1, 2004, we entered into a five year $75,000,000 Revolving Line of Credit Agreement, dated as of June
1, 2004, with Bank of America, N.A. and other lenders and a one year $200,000,000 Term Loan Credit
Agreement, dated as of June 1, 2004, with Banc of America Mezzanine Capital, LLC. The Term Loan Credit
Agreement was a temporary financing to fund the balance of OXO's purchase price, as further discussed in Note
(16) to these consolidated financial statements. We entered into this Term Loan Credit Agreement until more
permanent long-term financing could be put into place. The purchase price of the OXO International
acquisition was funded by borrowings of $73,173,000 under the new Revolving Line of Credit Agreement and
$200,000,000 under the Term Loan Credit Agreement. Borrowings under the Term Loan Credit Agreement
were subsequently paid off with the proceeds of the funding of $225,000,000 Floating Rate Senior Notes on
69
NOTE 5 – SHORT-TERM DEBT, CONTINUED
June 29, 2004 as discussed in Note (6). For the period outstanding, borrowings under the Term Loan Credit
Agreement accrued interest at LIBOR plus a margin of 1.125 percent.
Borrowings under the Revolving Line of Credit Agreement accrue interest equal to the higher of the Federal
Funds Rate plus 0.50 percent or Bank of America's prime rate. Alternatively, upon timely election by the
Company, borrowings accrue interest based on the respective 1, 2, 3, or 6-month LIBOR rate plus a margin of
0.75 percent to 1.25 percent based upon the "Leverage Ratio" at the time of the borrowing. The "Leverage
Ratio" is defined by the Revolving Line of Credit Agreement as the ratio of total consolidated indebtedness,
including the subject funding on such date to consolidated EBITDA ("Earnings Before Interest, Taxes,
Depreciation and Amortization") for the period of the four consecutive fiscal quarters most recently ended, with
EBITDA adjusted on a pro forma basis to reflect the acquisition of OXO and the disposition of Tactica. The
rates paid on various draws during the period from June 1, 2004 through February 28, 2005 ranged from 2.195
percent to 5.500 percent. The new credit line allows for the issuance of letters of credit up to $10,000,000.
Outstanding letters of credit reduce the $75,000,000 borrowing limit dollar for dollar. Upon the execution of
this new credit facility, our previous $50,000,000 unsecured revolving credit facility with Bank of America was
cancelled. As of February 28, 2005, there were no revolving loans and $150,000 of open letters of credit
outstanding against this facility.
The Revolving Line of Credit Agreement continues to require and the Term Loan Credit Agreement required
the maintenance of certain Debt/EBITDA, fixed charge coverage ratios, and other customary covenants. The
agreements were guaranteed, on a joint and several basis, by the parent company, Helen of Troy Limited, and
certain U.S. subsidiaries.
Other Letters of Credit
One of the Company's U.S. subsidiaries had issued a $389,000 standby letter of credit to the lessor of Tactica's
office space in New York City. The lessor could draw funds from the standby letter of credit if Tactica failed to
meet its obligations under the lease. After our sale of Tactica as discussed in Note (15), we took measures to
cancel the original letter of credit and issue another standby letter of credit under a new banking relationship.
Tactica has since filed for bankruptcy and did indeed fail to meet its obligations under the lease. The lessor had
requested draws against the original letter of credit for a total of $241,000, through February 28, 2005, which
has been adequately provided for in our consolidated financial statements.
NOTE 6 - LONG-TERM DEBT
Long-Term Debt Agreements Outstanding at February 29, 2004
On January 5, 1996, one of our U.S. subsidiaries issued guaranteed Senior Notes at face value of $40,000,000.
Interest is paid quarterly at an annual rate of 7.01 percent. The Senior Notes are unsecured, and are guaranteed
by Helen of Troy Limited and certain of our subsidiaries. Annual principal payments of $10,000,000 each
began on January 5, 2005, with the final payment due January 5, 2008. $30,000,000 and $40,000,000 were
outstanding under these Senior Notes at February 28, 2005 and February 29, 2004, respectively. Using a
discounted cash flow analysis based on estimated market rates, the estimated fair value of the guaranteed Senior
Notes at February 28, 2005 is approximately $31,580,000.
On July 18, 1997, one of our U.S. subsidiaries issued a $15,000,000 Senior Note. Interest is paid quarterly at an
annual rate of 7.24 percent. The $15,000,000 Senior Note is unsecured, is guaranteed by Helen of Troy Limited
70
NOTE 6 - LONG-TERM DEBT, CONTINUED
and certain of our subsidiaries and is due July 18, 2012. Annual principal payments of $3,000,000 each begin
July 18, 2008, with the final payment due July 18, 2012. Using a discounted cash flow analysis based on
estimated market rates, the estimated fair value of the guaranteed Senior Note at February 28, 2005 is
approximately $16,560,000.
Both the $40,000,000 and $15,000,000 Senior Notes contain covenants that require that we meet certain net
worth and other financial requirements. Additionally, the notes restrict us from incurring liens on any of our
properties, except under certain conditions as defined in the Senior Note agreements. We are in compliance with
all the terms of these notes. Under the terms of the Senior Notes, one of our U.S. subsidiaries is the borrower.
Our consolidated group's parent company, located in Bermuda, one of our subsidiaries located in Barbados, and
three of our U.S. subsidiaries fully guarantee the Senior Notes on a joint and several basis.
Long-Term Debt Agreements Entered into During the Current Fiscal Year
On June 29, 2004, we closed on a $225,000,000 Floating Rate Senior Note financing arranged by Banc of
America Securities LLC with a group of ten financial institutions. The Senior Notes consist of $100,000,000 of
five year notes, $50,000,000 of seven year notes, and $75,000,000 of ten year notes. Interest on the notes is
payable quarterly. Interest rates are reset quarterly based on the 3 month LIBOR rate plus 85 basis points for
the five and seven year notes, and the 3 month LIBOR rate plus 90 basis points for the ten year notes. Interest
rates during the latest fiscal year on these notes ranged from 2.436 to 3.410 percent for the five and seven year
notes, and 2.486 to 3.460 percent for the ten year notes. On March 29, 2005, the quarterly interest rates on
these notes were reset from 3.410 to 3.940 percent for the five and seven year notes and from 3.460 to 3.990
percent for the ten year notes. The Senior Notes allow for prepayment subject to the following terms: five year
notes can be prepaid in the first year with a 2 percent penalty, thereafter there is no penalty; seven and ten year
notes can be prepaid after one year with a 1 percent penalty, and after two years with no penalty.
The proceeds of the Senior Notes financing were used to repay the $200,000,000 borrowings under the Term
Loan Credit Agreement, and $25,000,000 of the outstanding borrowings on our $75,000,000 Revolving Line of
Credit Agreement.
The Senior Notes are unsecured and require the maintenance of certain Debt/EBITDA, fixed charge coverage
ratios, consolidated net worth levels, and other customary covenants. The Senior Notes have been guaranteed,
on a joint and several basis, by the parent company, Helen of Troy Limited, and certain U.S. subsidiaries.
See Note (9) to these consolidated financial statements for maturity schedules of principal amounts due under
all Senior Notes.
71
NOTE 7 - INCOME TAXES
Our components of earnings from continuing operations before income tax expense are as follows:
U.S.
Non-U.S.
2005
Years Ended Last Day of February,
(in thousands)
----------------------------------------------------------------
2004
-------------------- -------------------- --------------------
11,866
$
36,704
-------------------- -------------------- --------------------
48,570
$
============ ============ ============
15,529
74,050
13,760
72,279
$
$
$
$
89,579
86,039
2003
Our components of income tax expense attributable to continuing operations are as follows:
Years Ended Last Day of February,
(in thousands)
----------------------------------------------------------------
2004
-------------------- -------------------- --------------------
2005
2003
Current
Deferred
U.S.
Non-U.S.
$
$
$
5,410
9,108
(1,611)
3,507
5,465
1,806
-------------------- -------------------- --------------------
10,778
$
============ ============ ============
5,105
8,444
928
$
$
12,907
14,477
Our total income tax expense from continuing operations 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
Reversal of prior accruals as a result
of final tax audit settlements
Actual tax expense
Years Ended Last Day of February,
(in thousands)
----------------------------------------------------------------
2004
-------------------- -------------------- --------------------
2003
2005
$
31,353
$
30,114
$
17,000
(16,400)
(15,637)
(6,222)
(2,046)
-
-
-------------------- -------------------- --------------------
$10,778
$
============ ============ ============
$14,477
12,907
72
NOTE 7 - INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities as of the last day of February 2005 and 2004 are as follows:
Deferred tax assets:
Net operating loss carryforwards
Inventories, principally due to additional
cost of inventories for tax purposes
Contribution carryforward
Write down of marketable securities
Accrued expenses
Accounts receivable
Total gross deferred tax assets
Valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Net deferred tax asset
2005
2004
-------------------- --------------------
(in thousands)
$
6,080
$
4,256
1,723
721
1,039
609
2,502
1,190
0
0
926
2,412
-------------------- --------------------
8,784
(70)
12,674
0
(5,019)
(2,784)
-------------------- --------------------
5,930
$
============ ============
$
7,655
As of the end of fiscal 2005, $5,963,000 of our gross deferred tax assets arise from U.S. net operating loss
carryforwards which will expire if not utilized by various dates ranging from fiscal 2019 to 2025, and $117,000
of our gross deferred tax assets arise from Non-U.S. net operating loss carryforwards which will expire if not
utilized by various dates between fiscal 2006 and fiscal 2014.
Hong Kong Income Taxes - The Inland Revenue Department ("the IRD") in Hong Kong has assessed a total of
$32,086,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through 2003.
Hong Kong taxes income earned from certain activities conducted in Hong Kong. We are vigorously defending
our position that we conducted the activities that produced the profits in question outside of Hong Kong. We
also assert that we have complied with all applicable reporting and tax payment obligations.
In connection with the IRD's tax assessment for the fiscal years 1995 through 1997, we were required to
purchase $3,282,000 (U.S.) in tax reserve certificates in Hong Kong. During fiscal 2005, we purchased
additional tax reserve certificates in the amount of $25,144,000 (U.S.) as required by the IRD. With the
purchase of these certificates, we have purchased tax reserve certificates totaling $28,426,000 for fiscal years
1995 through 2003. 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 dollars and are
subject to the risks associated with foreign currency fluctuations.
If the IRD's position were to prevail and if it were to assert the same position for fiscal years after fiscal year
2003, the resulting assessment could total $18,340,000 (U.S.) in taxes for fiscal years 2004 and 2005. We would
vigorously disagree with the proposed adjustments and would aggressively contest this matter through
applicable taxing authority and judicial procedures, as appropriate. Although the final resolution of the proposed
adjustments is uncertain and involves unsettled areas of the law, based on currently available information, we
have provided for our best estimate of the probable tax liability for this matter. While the resolution of the issue
may result in tax liabilities which are significantly higher or lower than the reserves established for this matter,
management currently believes that the resolution will not have a material effect on our consolidated financial
73
NOTE 7 - INCOME TAXES, CONTINUED
position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated
results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.
United States Income Taxes - The Internal Revenue Service ("the IRS") has completed its audits of the U.S.
consolidated federal tax returns for fiscal years 2000, 2001 and 2002. We previously disclosed that the IRS
provided notice of proposed adjustments to taxes of approximately $13,424,000 for the three years under audit.
We have resolved the various tax issues and reached an agreement on additional tax in the amount of
$3,568,000. The resulting tax liability had already been provided for in our tax reserves and we have decreased
our tax accruals related to the IRS audits for fiscal years 2000, 2001 and 2002, accordingly. This additional tax
liability will be settled with funds already on deposit with the IRS.
The American Jobs Creation Act (“AJCA”) was signed into law by the President on October 22, 2004. The
AJCA creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income
earned outside the United States by providing an 85 percent dividend received deduction for certain dividends
from controlled foreign corporations. According to the AJCA, the amount of eligible repatriation is limited to
$500 million or the amount described as permanently reinvested earnings outside the United States in the most
recent audited financial statements filed with the Securities and Exchange Commission on or before June 30,
2003. Whether the Company will ultimately take advantage of the provision depends on a number of factors
including potential forthcoming Congressional actions, Treasury regulations and development of a qualified
reinvestment plan.
At this time, we have not made any changes to our existing position on reinvestment of foreign earnings subject
to the AJCA. Our position is that we will permanently reinvest all of the undistributed earnings of the non-U.S.
subsidiaries of certain U.S. subsidiaries, and accordingly have made no provision for U.S. federal income taxes
on these undistributed earnings. At February 28, 2005, undistributed earnings for which we had not provided
deferred U.S. federal income taxes totaled $37,748,000.
Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense
for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets
and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and
financial statement purposes.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely,
we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that
we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to
recover our deferred tax assets, our tax provision is increased in any period in which we determine that the
recovery is not probable.
In 1994, we engaged in a corporate restructuring that, among other things, resulted in a greater portion of our
income not being subject to taxation in the United States. If such income were subject to U.S. federal income
taxes, our effective income tax rate would increase materially. In addition to potential changes in tax laws, the
Company's position on various tax matters may be challenged. Our ability to maintain our position that the
parent company is not a Controlled Foreign Corporation (as defined under the U.S. Internal Revenue Code) is
critical to the tax treatment of our non-U.S. earnings. A Controlled Foreign Corporation is a non-U.S.
corporation whose largest U.S. shareholders (i.e., those owning 10 percent or more of its stock) together own
more than 50 percent of the stock in such corporation. If a change of ownership of the Company were to occur
74
NOTE 7 - INCOME TAXES, CONTINUED
such that the parent company became a Controlled Foreign Corporation, such a change could have a material
negative effect on the largest U.S. shareholders and, in turn, on the Company's business.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of other
complex tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and other
tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we
ultimately determine that payment of these amounts are unnecessary, we reverse the liability and recognize a
tax benefit during the period in which we determine that the liability is no longer probable. We record an
additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is
less than we expect the ultimate assessment to be.
NOTE 8 - STOCK-BASED COMPENSATION PLANS
We sponsor 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. All
options to date have been granted at or above market prices on the dates of grant. Accordingly, no
compensation expense has been recognized for our stock option plans or our stock purchase plan. Had we
recorded compensation expense for our stock option plans based on the fair value of the options at the dates of
grant for those awards, consistent with the method of Statement of Financial Accounting Standards No. 123,
"Accounting For Stock-Based Compensation," net earnings and earnings per share would have been reduced to
the following pro forma amounts:
Net earnings
Earnings per share:
As Reported
Fair-value cost
Pro forma
As Reported
Pro forma
As Reported
Pro forma
Basic:
Diluted:
Years Ended The Last Day of February,
(in thousands)
-----------------------------------------------------------------------
2004
-------------------
$
60,522
6,620
-------------------
$
53,902
===============
2005
------------------
$
76,450
1,437
------------------
$
75,013
===============
2003
-------------------
$
38,716
7,004
-------------------
31,712
$
===============
$
$
2.57
2.52
$
$
2.35
2.30
$
$
2.13
1.90
$
$
1.94
1.72
$
$
1.37
1.12
$
$
1.31
1.07
We computed the pro forma figures disclosed above using the Black-Scholes option pricing model to estimate
grant date fair value of stock options for the periods shown above. The following Black-Scholes assumptions
were used:
Option Assumptions
------------------------------------------------------------------------------------------------------------- -------------------- -------------------- --------------------
0.0%
39.6%
4.1%
(1)
Dividend yield
Expected volatility
Risk-free interest rate
Expected option term
0.0%
42.5%
3.6%
(1)
0.0%
39.3%
3.7%
(1)
2005
2003
Years Ended The Last Day of February,
----------------------------------------------------------------
2004
(1) Expected lives of 3, 4, 5, or 10 years are used depending on the option granted.
75
NOTE 8 - STOCK-BASED COMPENSATION PLANS, CONTINUED
Under stock option and restricted stock plans adopted in 1994 and 1998 (the "1994 Plan" and the "1998 Plan,"
respectively) we reserved a total of 14,000,000 shares of our common stock for issuance to key officers and
employees. Pursuant to the 1994 and 1998 Plans, we grant options to purchase our 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 ("ISO's"), non-qualified stock options ("Non-Q's") 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. As of February 28,
2005, 24,486 shares remained available for issue under these plans.
In fiscal 1996, we reserved a total of 980,000 shares of our common stock for issuance to non-employee
members of our Board of Directors (the "Directors' Plan"). We grant options under the Directors' Plan at a price
equal to the fair market value of our 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. As of February 28, 2005,
336,000 shares remained available for issue under the Directors' Plan.
A summary of stock option activity under all plans is as follows:
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
Years Ended Last Day of February,
----------------------------------------------------------------------------------------------------------------------------
2004
----------------------------------------- ----------------------------------------- -----------------------------------------
2005
2003
WEIGHTED
AVERAGE
EXERCISE
PRICE
SHARES
(000's)
WEIGHTED
AVERAGE
EXERCISE
PRICE
SHARES
(000's)
WEIGHTED
AVERAGE
EXERCISE
PRICE
SHARES
(000's)
$
7,983
190
(1,288)
(39)
-------------------- -------------------- -------------------- -------------------- -------------------- --------------------
10.53
12.33
10.00
9.09
-------------------- -------------------- -------------------- -------------------- -------------------- --------------------
10.83
============ ============ ============ ============ ============ ============
10.66
============ ============ ============ ============ ============ ============
8,615
1,315
(1,874)
(73)
7,323
1,384
(56)
(36)
10.83
18.43
7.03
10.73
12.97
29.49
6.65
17.01
$
$
$
$
$
7,182
7,983
13.97
6,846
6,142
12.69
12.97
14.60
8,615
7,566
$
9.92
$
8.97
$
6.28
76
NOTE 8 - STOCK-BASED COMPENSATION PLANS, CONTINUED
The following table summarizes information about stock options at February 28, 2005:
------------------------------------------------------------------------------------------------ ------------------------------------------
Outstanding Stock Options
Exercisable Stock Options
Weighted-
Average
Remaining
Contractual
Life (years)
Weighted-
Average
Exercise
Price
Price Range
-------------------------------
$
11.78
to
13.37
to
$
15.51
to
$
35.25
to
$
4.86
12.13
14.02
18.83
$
$
$
$
$
-------------------- -------------------- -------------------- --------------------
8.48
12.86
14.21
12.84
7.81
12.98
14.09
25.06
5.02
4.69
5.45
7.21
$
ISOs
Total
Non-Qs
Total
Directors' Plan
Total
Number of
Options
--------------------
132,000
38,300
119,091
293,500
--------------------
582,891
============
1,540,325
1,634,986
1,780,359
976,508
--------------------
5,932,178
============
78,500
36,000
64,000
152,000
--------------------
330,500
============
$
$
$
$
5.69
12.53
14.02
17.63
$
$
$
$
4.41
12.53
14.47
16.41
to
to
to
to
to
to
to
to
$
$
$
$
11.84
13.47
15.94
23.38
$
$
$
$
11.84
13.13
15.94
33.35
6.20
$
18.12
6.32
6.29
3.89
6.21
$
9.82
13.04
15.54
19.73
5.56
$
14.05
4.55
4.53
3.05
7.83
$
8.31
12.86
15.50
25.81
5.76
$
18.25
Weighted-
Average
Exercise
Price
$
13.01
$
9.91
13.04
15.56
19.50
$
13.99
$
8.31
12.86
15.50
20.67
$
13.92
Number of
Options
52,850
13,150
16,366
22,515
--------------------
104,881
============
1,507,300
1,634,586
1,759,984
900,523
--------------------
5,802,393
============
78,500
36,000
64,000
56,000
--------------------
234,500
============
In fiscal 1999, our shareholders approved an employee stock purchase plan (the "Stock Purchase Plan") under
which 500,000 shares of common stock are reserved for issuance to our employees, nearly all of whom are
eligible to participate. Under the terms of the Stock Purchase Plan, employees authorize the withholding of from
1 percent to 15 percent of their wages or salaries to purchase our common stock. The purchase price for stock
purchased under this plan is equal to the lower of 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. During fiscal 2005, employees purchased 12,375 shares
of common stock from the Company under the Stock Purchase Plan.
NOTE 9 – OTHER COMMITMENTS AND CONTINGENCIES
Under agreements with customers, licensors, and parties from whom we have acquired assets or entered into
business combinations, we indemnify these parties against liability associated with our products. Additionally,
we are party to a number of agreements under leases where we indemnify the lessor for liabilities attributable to
our action or conduct. The indemnity agreements to which we are a party do not, in general, increase our
liability for claims related to our products or actions and have not materially affected our accompanying
consolidated financial statements.
We have entered into employment contracts with certain of our 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 our assets 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 June 1,
2006 to February 28, 2010. The aggregate commitment for future salaries pursuant to such contracts, at
77
NOTE 9 – OTHER COMMITMENTS AND CONTINGENCIES, CONTINUED
February 28, 2005, excluding incentive compensation, was approximately $3,940,000. See Note (17) to these
consolidated financial statements for additional information regarding the modification of the terms of one of
these employment agreements on April 15, 2005.
We purchase most of our appliances and a significant portion of other products that we sell 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 our products are manufactured in the Far East, we are subject to risks
associated with trade barriers, currency exchange fluctuations, and political unrest. These risks have not
historically affected our operations. Additionally, we believe that we could obtain similar products from
facilities in other countries, if necessary. However, the relocation of any production capacity could require
substantial time and increased costs.
We regularly enter into arrangements with customers whereby we offer those customers incentives, including
incentives in the form of volume rebates. Our estimate of the liability for such incentives is included on the
consolidated balance sheets on the line entitled "Accrued expenses" and is based on incentives applicable to
sales up to the respective balance sheet dates.
We are involved in various other legal claims and proceedings in the normal course of operations. We believe
the outcome of these matters will not have a material adverse effect on our consolidated financial position,
results of operations, or liquidity.
Under the terms of a Shareholders' Rights Plan approved by our Board of Directors in fiscal 1999, we declared
a dividend of one preference share right ("right") for each outstanding share of common stock. The dividend
resulted in no cash payment by us, created no liability on our part, and did not change the number of shares of
our common stock outstanding. The rights are inseparable from the shares of our common stock and entitle its
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 percent of our outstanding common stock, our
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. These rights have certain anti-takeover effects. The rights
could cause substantial dilution to a person or group that attempts to acquire Helen of Troy Limited in certain
circumstances, but should not interfere with any merger or other business combination approved by our Board
of Directors. These rights expire December 1, 2008, unless their expiration date is advanced or extended or
unless under the terms of the agreement these rights are earlier redeemed or exchanged.
78
NOTE 9 – OTHER COMMITMENTS AND CONTINGENCIES, CONTINUED
Our contractual obligations and commercial commitments, as of February 28, 2005 were:
PAYMENTS DUE BY PERIOD ENDED THE LAST DAY OF FEBRUARY
(in thousands)
Contractual Obligations
--------------------------------------------------------------------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total
2006
1 year
2007
2 years
2008
3 years
2009
4 years
2010
5 years
After
5 years
Long-term debt
Open purchase orders - inventory
Minimum royalty payments
Advertising and promotional
Operating leases
Implementation of enterprise resource planning
system
Other
Total contractual obligations
$
270,000
125,563
18,856
24,936
3,863
$
10,000
125,563
3,595
6,875
1,486
$
10,000
-
3,708
6,914
1,234
$
10,000
-
3,713
6,114
698
$
3,000
-
3,729
1,837
243
$
103,000
-
2,946
929
202
$
134,000
-
1,165
2,267
-
1,600
13,511
1,600
5,925
-
4,431
-
3,155
-
-
-
-
-
-
-------------- -------------- -------------- -------------- -------------- -------------- --------------
$
137,432
23,680
======== ======== ======== ======== ======== ======== ========
155,044
458,329
107,077
26,287
8,809
$
$
$
$
$
$
We lease certain facilities, equipment and vehicles under operating leases, which expire at various dates through
fiscal 2010. Certain of the leases contain escalation clauses and renewal or purchase options. Rent expense
related to our operating leases was $1,757,000, $1,610,000 and $1,386,000 for fiscal 2005, 2004 and 2003,
respectively.
NOTE 10 - FOURTH QUARTER CHARGES/TRANSACTIONS
In the fourth quarter of fiscal 2004, we recorded a goodwill impairment loss of $ 5,699,000, net of tax benefits
of $1,938,000 in connection with our discontinued operations of Tactica, and its subsequent sale in fiscal 2005.
The details of this transaction are more fully described in Note (15). Our results for the fourth quarters of fiscal
2005 and 2003 did not contain any transactions of a non-routine nature.
79
NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is as follows (in thousands, except per share amounts):
Unaudited
Fiscal 2005:
Net sales
Gross profit
Net earnings from continuing operations
Income (loss) from discontinued segment's
operations and impairment of related assets,
net of tax
Net earnings
Earnings per share
Basic
Continuing operations
Discontinued operations
Total basic earnings per share
Diluted
Continuing operations
Discontinued operations
Total diluted earnings per share
Fiscal 2004:
Net sales
Gross profit
Net earnings from continuing operations
Income (loss) from discontinued segment's
operations and impairment of related assets,
net of tax
Net earnings
Earnings per share
Basic
Continuing operations
Discontinued operations
Total basic earnings per share
Diluted
Continuing operations
Discontinued operations
Total diluted earnings per share
May
November
-------------------- -------------------- -------------------- -------------------- --------------------
February
August
Total
$
107,021
$
141,229
$
205,682
$
127,617
$
581,549
50,240
14,705
(222)
14,483
0.50
(0.01)
0.49
0.45
(0.01)
0.44
66,913
18,848
98,651
$
58,700
31,135
11,984
274,504
76,672
-
-
-
18,848
31,135
11,984
(222)
76,450
0.63
-
0.63
0.57
-
0.57
1.04
-
1.04
0.97
-
0.97
0.41
-
0.41
0.37
-
0.37
2.58
(0.01)
2.57
2.36
(0.01)
2.35
$
91,236
$
105,335
$
165,386
$
112,911
$
474,868
43,562
14,621
223
14,844
0.52
0.01
0.53
0.49
0.01
0.50
47,121
14,710
75,226
25,933
51,308
16,298
217,217
71,562
(1,612)
13,098
(871)
25,062
(8,780)
7,518
(11,040)
60,522
0.52
(0.06)
0.46
0.47
(0.05)
0.42
0.92
(0.03)
0.89
0.81
(0.03)
0.78
0.55
(0.30)
0.25
0.50
(0.27)
0.23
2.52
(0.39)
2.13
2.29
(0.35)
1.94
The business of the Company is somewhat seasonal. Annual net sales volume of 35 percent normally occurs in
the third fiscal quarter.
80
NOTE 12 - SEGMENT INFORMATION
The following table contains segment information for fiscal 2005, 2004, and 2003.
(in thousands)
Personal
Care (1)
Discontinued
Segment (1)
2005
---------------------------------------------------------------------------- ---------------------- ---------------------- ---------------------- ----------------------
581,549
$
Net sales
102,024
Operating income
811,449
Identifiable assets
286,263
Capital, license, trademark and other intangible expenditures
9,708
Depreciation and amortization
$
-
-
-
-
-
501,406
76,993
506,957
21,738
7,556
80,143
25,031
304,492
264,525
2,152
Housewares (1)
$
$
Total
Personal
Care
Discontinued
Segment (1)
2004
---------------------------------------------------------------------------- ---------------------- ---------------------- ---------------------- ----------------------
474,868
Net sales
$
85,774
Operating income
489,609
Identifiable assets
65,119
Capital, license, trademark and other intangible expenditures
6,128
Depreciation and amortization
-
$
-
23,185
-
-
-
$
-
-
-
-
474,868
85,774
466,424
65,119
6,128
Housewares
$
Total
Personal
Care
Discontinued
Segment (1)
2003
---------------------------------------------------------------------------- ---------------------- ---------------------- ---------------------- ----------------------
379,751
Net sales
$
50,202
Operating income
405,629
Identifiable assets
59,596
Capital, license, trademark and other intangible expenditures
6,422
Depreciation and amortization
-
$
-
26,803
-
-
-
$
-
-
-
-
379,751
50,202
378,826
59,596
6,422
Housewares
$
Total
(1) Segment information from prior periods has been restated due to the classification of Tactica as discontinued
operations and a change in our segments effective March 1, 2004.
The Personal Care segment’s products include hair dryers, straighteners, curling irons, hairsetters, mirrors, hot
air brushes, home hair clippers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs,
hair accessories, mirrors, hair care products, body powder and skin care products.
The Housewares segment is new this year and reports the operations of OXO International (“OXO”) which we
acquired on June 1, 2004, as further described in Note (16) to our consolidated financial statements. The
Houseware segment’s products include food preparation tools and gadgets, household cleaning tools and
gardening tools.
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 expenses ("SG&A") used to compute each segment's operating profit are comprised of SG&A
expense directly associated with those segments, plus overhead expenses that are allocable to operating
segments. In connection with the acquisition of OXO, we agreed that World Kitchen, Inc. would perform
certain corporate functions for OXO for a transitional period of time. The costs of these functions are reflected
81
NOTE 12 - SEGMENT INFORMATION, CONTINUED
in SG&A for the Housewares segment’s operating income. These costs are currently expected to continue to be
incurred through the end of fiscal 2006. During this transitional period, we have not made an allocation of our
corporate overhead to OXO. We do not expect to make any allocation of our corporate overhead to OXO until
such time as the transition services provided by World Kitchen, Inc. terminate and are assumed by Helen of
Troy. When we decide that such allocations are appropriate, there may be some reduction in operating income
for the Housewares segment, offset by an equal increase in operating income for the Personal Care segment.
The extent of this operating income impact between the segments has yet to be determined.
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
(in thousands):
NET REVENUES FROM THIRD PARTIES:
United States
International
Total
LONG-LIVED ASSETS:
United States
International
Total
2005
2004
-------------------- -------------------- --------------------
2003
$
$
475,212
106,337
339,537
40,214
-------------------- -------------------- --------------------
379,751
$
============ ============ ============
397,856
77,012
581,549
474,868
$
$
$
$
$
496,189
28,026
166,599
20,600
-------------------- -------------------- --------------------
187,199
$
============ ============ ============
221,647
24,222
524,215
245,869
$
$
$
Sales to one customer and its affiliate accounted for 25 percent, 28 percent, and 29 percent of the net sales in
our continuing operations for fiscal 2005, 2004, and 2003, respectively. Of our total sales to that customer and
its affiliate, 95 percent, 100 percent, and 92 percent, respectively were made within the United States during
fiscal 2005, 2004, and 2003, respectively.
NOTE 13 - FORWARD CONTRACTS
Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk
from transactions denominated in currencies other than the U.S. Dollar ("foreign currencies"). Such transactions
include sales, certain inventory purchases and operating expense. As a result of such transactions, portions of
our cash, trade accounts receivable, and trade accounts payable are denominated in foreign currencies.
These sales were primarily denominated in Canadian Dollars, British Pounds, Euros and Mexican Pesos. We
make most inventory purchases from the Far East using the U.S. Dollar for such purchases.
We identify foreign currency risk by regularly monitoring our foreign currency-denominated transactions and
balances. Where operating conditions permit, we reduce foreign currency risk by purchasing most of our
inventory with U.S. Dollars and by converting cash balances denominated in foreign currencies to U.S. Dollars.
We also hedge against foreign currency exchange rate-risk by using a series of forward contracts designated as
cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions
denominated in currencies other than the U.S. Dollar. For transactions designated as cash flow hedges, the
effective portion of the change in the fair value (arising from the change in the spot rates from period to period)
is deferred in other comprehensive income. These amounts are subsequently recognized in "Selling, general,
and administrative expense" in the consolidated statements of income in the same period as the forecasted
82
NOTE 13 - FORWARD CONTRACTS, CONTINUED
transactions close out over the remaining balance of their terms. The ineffective portion of the change in fair
value (arising from the change in the difference between the spot rate and the forward rate) is recognized in the
period it occurred. These amounts are also recognized in "Selling, general, and administrative
expense" in the consolidated statements of income. We do not enter into any forward exchange contracts or
similar instruments for trading or other speculative purposes.
The following table summarizes the various forward contracts we designated as cash flow hedges that were
open at the end of fiscal 2005 and 2004:
Contract
Type
February 28, 2005
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Market Value
of the
Contract in
US Dollars
(Thousands)
------------- ------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ------------------ ------------------ ----------------
($547)
Sell
($891)
Sell
($548)
Sell
($403)
Sell
($2,389)
Weighted
Average
Forward Rate
at Feb. 28,
2005
Weighted
Average
Forward Rate
at Inception
£5,000,000
£5,000,000
£10,000,000
€ 3,000,000
2/13/2004
5/21/2004
1/26/2005
5/21/2004
Range of Maturities
-----------------------------------
11/10/2005
12/14/2005
12/11/2006
2/17/2006
2/17/2006
2/9/2007
Pounds
Pounds
Pounds
Euros
1.8800
1.7900
1.8700
1.2000
1.8949
1.8913
1.8776
1.3344
1.7854
1.7131
1.8228
1.2002
1.9231
1.9231
1.9231
1.3241
Spot Rate at
Contract Date
Spot Rate at
Feb. 28, 2005
Currency
to Deliver
Notional
Amount
Contract Date
2/10/2006
From
To
Contract
Type
February 29, 2004
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Market Value
of the
Contract in
US Dollars
(Thousands)
------------- ------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ------------------ ------------------ ----------------
($888)
Sell
$46
Sell
($141)
Sell
----------------
($983)
==============
Weighted
Average
Forward Rate
at February 29,
2004
£5,000,000 11/18/2003
2/13/2004
£5,000,000
12/2/2003
€ 3,000,000
Weighted
Average
Forward Rate
at Inception
Spot Rate at
February 29,
2004
Range of Maturities
-----------------------------------
Spot Rate at
Contract Date
$1.6950
1.8800
1.2070
$1.8167
1.7763
1.2399
$1.6392
1.7854
1.1928
$1.8666
1.8666
1.2492
11/9/2004
11/10/2005
Pounds
Pounds
Euro's
Currency
to Deliver
2/8/2005
2/17/2006
Notional
Amount
Contract Date
2/8/2005
From
To
NOTE 14 - NON-MONETARY TRANSACTIONS
During fiscal 2003, we entered into two non-monetary transactions in which we exchanged inventory with a net
book value of approximately $3,100,000 for advertising credits. During fiscal 2005, we entered into two
additional nonmonetary transactions in which we exchanged inventory with a book value of approximately
$1,011,000 for additional advertising credits. As a result of these transactions, we recorded both sales and cost
of goods sold equal to the exchanged inventory's net book value, which approximated their fair value. We used
approximately $1,196,000, $1,400,000 and $600,000 of the advertising credits during fiscal 2005, 2004 and
2003, respectively. All credits from the 2003 transaction have been utilized. All remaining credits are valued at
$915,000 and $1,100,000 on our consolidated balance sheets at the end of fiscal 2005 and 2004, respectively,
and are included in the line item entitled "Prepaid Assets."
NOTE 15 – SALE OF TACTICA INTERNATIONAL, INC.
On April 29, 2004, we sold our 55 percent interest in Tactica International, Inc., to certain shareholder-
operating managers. In exchange for our 55 percent ownership share of Tactica and the release of $16,936,000
of its secured debt and accrued interest owed to us, we received marketable securities, intellectual properties
83
NOTE 15 – SALE OF TACTICA INTERNATIONAL, INC., CONTINUED
and the right to certain tax refunds. The fair value of net assets received was equal to the book value of net
assets transferred; accordingly, no gain or loss was recorded as a result of this sale.
The schedule below shows the assets we received in a non-cash exchange for our ownership interest in Tactica.
Assets Received in Noncash Exchange for Ownership Interest in Tactica
at April 29, 2004
(in thousands)
Tax refunds receivable
Marketable securities recorded as stock available for sale
Epil-Stop trademark
Total assets received
$
2,908
3,030
2,255
--------------------
$
8,193
============
The marketable securities received in the Tactica sale carry a restriction that prevents us from disposing of the
stock prior to July 31, 2005. At February 28, 2005 the market value of these securities was $120,000. In the
third fiscal quarter of 2005, management determined the decline in market value to be other-than-temporary and
accordingly began recording losses on the stock. For fiscal 2005, the total loss on stock available for sale was
$2,910,000.
Tactica was sold because we believed it no longer fit into our business model and that a sale was the most
appropriate course of action to maximize our long-term shareholder value.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142")
requires at least an annual impairment review of goodwill and other intangible assets, which we normally
undertake on March 1 of each year. SFAS 142 also requires a review of goodwill for impairment upon the
occurrence of certain events that would more likely than not reduce the fair value of a segment below its
carrying amount. One of those events is the impending disposal of a segment. After evaluating the facts and
circumstances surrounding the fiscal 2004 operations of our Tactica operating segment and its subsequent sale,
against the guidelines established by SFAS 142, we recorded a loss of $5,699,000 for the impairment of 100
percent of the Tactica goodwill, net of $1,938,000 of related tax benefits, in the fourth fiscal quarter of 2004.
Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets" ("SFAS 144") provides accounting guidance for accounting segments to be disposed by sale and,
in our circumstances, required us to report Tactica as a discontinued operation. In accordance with SFAS 144,
we classified all assets and liabilities of Tactica as "Assets of discontinued segment held for sale" and
"Liabilities of discontinued segment held for sale" in the accompanying consolidated balance sheet as of
February 29, 2004. SFAS 144 also requires us to report Tactica's operating results, net of taxes, as a separate
summarized component after income from continuing operations for each year presented. The accompanying
consolidated statements of income and consolidated statements of cash flows contain all appropriate
reclassifications for each period presented.
84
NOTE 16 – ACQUISITION OF OXO
On June 1, 2004, we acquired certain assets and liabilities of OXO International ("OXO") for a net cash
purchase price of approximately $273,173,000 including the assumption of certain liabilities. This acquisition
was accounted for as the purchase of a business. The results of OXO's operations have been included in the
consolidated financial statements since that date. The assets acquired in the OXO acquisition included
intellectual property, contracts, goodwill, inventory and books and records. The assumed liabilities included
contractual obligations and accruals, and certain lease obligations assumed in connection with OXO's office
facilities in New York City. Thirty five OXO employees, including its President, joined the Company as part of
the acquisition.
OXO is a world leader in providing innovative consumer products in a variety of product areas. OXO offers
approximately 500 consumer product tools in several categories, including: kitchen, cleaning, barbecue,
barware, garden, automotive, storage, and organization. OXO also has strong customer relationships with
leading specialty and department store retailers. Each year approximately 90 products are introduced through
the OXO Good Grips®, OXO Steel™, OXO Good Grips i-Series®, and OXO SoftWorks® product lines.
The following schedule presents the net assets of OXO acquired at closing:
OXO - Net Assets Acquired on June 1, 2004
(in thousands)
Finished goods inventories
Property and equipment
Trademarks
Goodwill
Other intangible assets
Total assets acquired
Less: Current liabilities assumed
Net assets acquired
$
15,728
2,907
75,200
165,388
17,990
--------------------
277,213
(4,040)
--------------------
$
273,173
============
The allocations above reflect the completion of our analysis of the economic lives of the assets acquired and
appropriate allocation of the initial purchase price based upon independent appraisals. We believe that the
OXO acquisition resulted in recognition of goodwill primarily because of its industry position, management
strength, and business growth potential.
85
NOTE 16 – ACQUISITION OF OXO, CONTINUED
The following pro forma unaudited financial data for the years ending February 28, 2005 and February 29, 2004
is presented to illustrate the estimated effects of the OXO acquisition as if the transaction had occurred as of the
beginning of the fiscal periods presented.
Results of Operations if OXO Acquisition Had Been Completed at March 1, 2003
(in thousands, except per share data)
Years Ended The Last Day of February,
--------------------------------------------------
Net sales
Income from continuing operations
Diluted earnings from continuing operations per share, as
if no additional share dilution had occurred since
February 29, 2004
Impact of additional dilution since February 29, 2004
Diluted earnings from continuing operations per share
NOTE 17 – SUBSEQUENT EVENTS
2005
2004
-------------------------- --------------------------
561,374
$
83,337
602,804
79,924
$
$
$
2.56
(0.11)
2.45
2.67
-
2.67
$
$
On May 2, 2005, we entered into an agreement with a third party developer to purchase a 1,200,000 square foot
warehouse facility in Southaven, Mississippi to be built to our specifications on approximately 59 acres of land.
The initial purchase price will be approximately $33,000,000, subject to adjustment for change orders and
liquidated damages in the event construction runs beyond the term the developer has agreed to. Total costs of
the project including warehouse equipment and fixtures is estimated to be approximately $45,000,000, which
we expect to fund out of a combination of cash from operations, our existing revolving line of credit, and the
proceeds from the sale of our existing facility in Southaven, Mississippi. We may also look at other types of
financing. The agreement gives us a 24-month option to purchase an additional adjacent 31 acre tract of land
for approximately $1,600,000, to allow for additional expansion. The purchase agreement also gives the
company a “put option” to require the developer to purchase our existing Southaven, Mississippi 619,000
square foot warehouse for $16,000,000 at any time between 30 and 180 days following the closing on the
purchase of the new facility. We do not expect to incur any losses on the disposition of our existing facility. We
expect to occupy the new facility in the last fiscal quarter of fiscal 2006.
On April 21, 2005, the Company and Gerald J. Rubin, the Chairman of the Board, Chief Executive Officer, and
President of the Company, executed an amendment to Mr Rubin’s employment agreement, to be effective as of
April 15, 2005 making the following changes:
• The term of the agreement was reduced from five years to three years, renewing on a daily basis
for a new three-year term as currently provided in the original Agreement; and
• Reduced the period for severance payouts from five years to three years. The formula for
calculating the amount of the annual severance payments required by the agreement remains
unchanged.
86
HELEN OF TROY LIMITED AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended the last day of February 2005, 2004 and 2003
(in thousands)
Write-off of
uncollectible Balance at
Description
End of Year
-------------------------------------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Year ended February 28, 2005
Charged to
cost and
expenses
Balance at
Beginning
of Year
Recoveries
accounts
Additions
----------------------------------
Allowance for accounts receivable
$
1,100
$
1,728
$
17
$
678
$
2,167
Year ended February 29, 2004
Allowance for accounts receivable
Year ended February 28, 2003
Allowance for accounts receivable
1,089
1,004
3,188
1,517
31
77
1,024
1,100
3,693
1,089
87
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures as
defined in Securities and Exchange Commission (SEC) Rule 13a-15(e) as of the end of the period covered by
this 2005 Form 10-K. Management has concluded that our disclosure controls and procedures are effective to
ensure that information we are required to disclose in reports that we file or submit under the Securities
Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate
to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms.
The management reports on internal control over financial reporting and the attestation report of the
independent registered public accounting firm required by this item are set forth under Item 8 of this 2005
Annual Report on pages 47 and 48, and are incorporated herein by reference.
Our management, including the CEO and CFO, does not expect that our Disclosure Controls or our
internal control over financial reporting will prevent all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error
or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or
procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
In the process of our evaluation, among other matters, we considered the existence of any “significant
deficiencies” or “material weaknesses” in our internal control over financial reporting, and whether we had
identified any acts of fraud involving personnel with a significant role in our internal control over financial
reporting. In the professional auditing literature, “significant deficiencies” are referred to as “reportable
conditions,” which are deficiencies in the design or operation of controls that could adversely affect our ability
to record, process, summarize and report financial data in the financial statements. Auditing literature defines
“material weakness” as a particularly serious reportable condition in which the internal control does not reduce
to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be
material in relation to the financial statements and the risk that such misstatements would not be detected within
a timely period by employees in the normal course of performing their assigned functions.
88
CHANGES IN INTERNAL CONTROLS
In connection with the evaluation described above, we identified no change in our internal control over
financial reporting that occurred during our fiscal quarter ended February 28, 2005, and that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
During fiscal 2005 we converted to a new global information system and committed substantial internal
and external resources to revise and document operational processes and related internal controls. Our objective
was to promote greater uniformity and consistency of transaction processing across all aspects of our
operations. Our conversion to the new information system included a project phase specifically focused on
revising our formal understanding of our system of internal control over financial reporting with the objective of
meeting the formalized requirements of Section 404 of the Sarbanes-Oxley Act. Our intent was to establish the
Disclosure Controls and more pervasive Internal Controls over Financial Reporting as dynamic systems that can
undergo appropriately authorized change as conditions warrant.
The conversion to our new global information system is still very recent. Also, we continue to phase in
additional reports and functionality, and will be transitioning OXO, Mexico and our Latin American operations
to the new system during fiscal 2006 and 2007. Due to the complexities of these efforts, we expect to continue
to experience a period of significant change and tuning of the system for many months to come. While nothing
has come to our attention that would lead us to believe that we may experience errors or misstatements of our
financial results during this time-frame, we recognize that this continues to be a challenging transition for us
and will require close monitoring to keep our documentation of internal controls current. We believe we have
the process and appropriate management in place to effectively manage this transition.
ITEM 9B. OTHER INFORMATION
None
89
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in our Proxy Statement, which we will be filed within 120 days of the end of our 2005 fiscal
year, is incorporated by reference in response to this Item 10., as noted below:
•
•
•
•
•
•
Information about our Directors;
Information about our Executive Officers;
Information about our compliance with Section 16(a) of the Securities Exchange Act of 1934, regarding
certain beneficial owners of our common stock;
Information about our Nominating and Corporate Governance Committee;
Information about our Audit Committee, including the members of the committee, and our Audit
Committee financial experts; and
Information about the Code of Ethical Business Conduct governing all our employees, and the more
specific Code of Ethics governing our Chief Executive Officer, Chief Financial and Principal
Accounting Officer, and finance department members.
ITEM 11. EXECUTIVE COMPENSATION
Information in our Proxy Statement, which will be filed within 120 days of the end of our 2005 fiscal
year, is incorporated by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information in our Proxy Statement, which will be filed within 120 days of the end of our 2005 fiscal
year, is incorporated by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in our Proxy Statement, which will be filed within 120 days of the end of our 2005 fiscal
year, is incorporated by reference in response to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information in our Proxy Statement, which will be filed within 120 days of the end of our 2005 fiscal
year, is incorporated by reference in response to this Item 14.
90
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
1.
2.
3.
Financial Statements: See "Index to Consolidated Financial Statements" under Item 8 on
page 46 of this Annual Report.
Financial Statement Schedule: See "Schedule II" on page 84 of this Annual Report
Exhibits
The exhibit numbers preceded by an asterisk (*) indicate exhibits physically filed with this
2005 Form 10-K. All other exhibit numbers indicate exhibits filed by incorporation by
reference. Exhibits preceded by two asterisks (**) are management contracts or
compensatory plans or arrangements.
2.1
2.2
3.1
3.2
4.1
Acquisition Agreement, dated April 29, 2004, by and among World Kitchen (GHC), LLC, WKI
Holding Company, Inc., World Kitchen, Inc., Helen of Troy Limited (Barbados), and Helen of
Troy Limited (Bermuda) (incorporated by reference to Exhibit 2.1 to the Company’s Current
Report on Form 8-K, filed on April 30, 2004).
Amendment to the Acquisition Agreement, dated June 1, 2004, by and among World Kitchen
(GHC), LLC, WKI Holding Company, Inc., World Kitchen, Inc., Helen of Troy Limited
(Barbados), and Helen of Troy Limited (Bermuda) (incorporated by reference to Exhibit 2.2 to the
Company’s Current Report on Form 8-K, filed on June 3, 2004).
Memorandum of Association (incorporated by reference to Exhibit 3.1 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 (the "1993 S-4")).
By-Laws (incorporated by reference to Exhibit 3.2 of the 1993 S-4).
Rights Agreement, dated as of December 1, 1998, between Helen of Troy Limited and Harris Trust
and Savings Bank, as Rights Agent (incorporated by reference to 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**
10.2**
10.3
Form of Directors' and Executive Officers' Indemnity Agreement (incorporated by reference to
Exhibit 10.2 to the 1993 S-4).
1994 Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.1 to the
1993 S-4).
Revlon Consumer Products Corporation (RCPC) North American Appliances License Agreement
dated September 30, 1992 (incorporated by reference to Exhibit 10.31 to Helen of Troy
Corporation's Quarterly Report on Form 10-Q for the period ending November 30, 1992 (the
"November 1992 10-Q")).
10.4
Revlon Consumer Products Corporation (RCPC) International Appliances License Agreement
dated September 30, 1992 (incorporated by reference to Exhibit 10.32 to the November 1992
10-Q).
91
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Revlon Consumer Products Corporation (RCPC) North American Comb and Brush License
Agreement dated September 30, 1992 (incorporated by reference to Exhibit 10.33 to the November
1992 10-Q).
Revlon Consumer Products Corporation (RCPC) International Comb and Brush License
Agreement dated September 30, 1992 (incorporated by reference to Exhibit 10.34 to the November
1992 10-Q).
First Amendment to RCPC North America Appliance License Agreement, dated September 30,
1992 (incorporated by reference to Exhibit 10.26 to Helen of Troy Corporation's Annual Report
on Form 10-K for the period ending February 28, 1993 (the "1993 10-K")).
First Amendment to RCPC North America Comb and Brush License Agreement, dated September
30, 1992 (incorporated by reference to Exhibit 10.27 to the 1993 10-K).
First Amendment to RCPC International Appliance License Agreement, dated September 30, 1992
(incorporated by reference to Exhibit 10.28 to the 1993 10-K).
First Amendment to RCPC International Comb and Brush License Agreement, dated September
30, 1992 (incorporated by reference to Exhibit 10.29 to the 1993 10-K).
Amended and Restated Note Purchase, Guaranty and Master Shelf Agreement, $40,000,000 7.01
percent Guaranteed Senior Notes and $40,000,000 Guaranteed Senior Note Facility (incorporated
by reference to Exhibit 10.23 to Helen of Troy Limited's Quarterly Report on Form 10-Q for the
period ending November 30, 1996).
10.12** Helen of Troy Limited 1998 Employee Stock Option and Restricted Stock Plan (incorporated by
reference to Exhibit 4.3 to Helen of Troy Limited's Registration Statement on Form S-8, File
Number 333-67369, filed with the Securities and Exchange Commission on November 6, 1998).
10.13** Helen of Troy Limited 1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit
4.3 to Helen of Troy Limited's Registration Statement on Form S-8, File Number 333-67349, filed
with the Securities and Exchange Commission on November 16, 1998).
10.14** Amended and Restated Employment Agreement between Helen of Troy Limited and Gerald J.
Rubin, dated March 1, 1999 (incorporated by reference to Exhibit 10.29 to Helen of Troy Limited's
Quarterly Report on Form 10-Q for the period ending August 31, 1999 (the August 1999 10-Q)).
10.15** Amended and Restated Helen of Troy Limited 1995 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.30 to the August 1999 10-Q).
10.16 Master License Agreement dated October 21, 2002, between The Procter & Gamble Company and
Helen of Troy Limited (Barbados) (Confidential treatment has been requested with respect to
certain portions of this exhibit. Omitted portions have been filed separately with the Commission).
10.17
Acquisition Agreement, dated August 31, 2003, between Conopco, Inc. (a wholly owned
subsidiary of Unilever NV), Helen of Troy Limited (Barbados), Helen of Troy Limited (Bermuda),
and Helen of Troy Texas Corporation for the purchase of certain assets related to the North
American, Latin American and Caribbean production and distribution of Brut Fragrances,
Deodorants and Antiperspirants (incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 14,
2003).
92
10.18
Loan Agreement, dated September 22, 2003, Helen of Troy Limited (Barbados), Helen of Troy
L.P. (Texas), and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K, filed with the Securities and Exchange Commission on
October 14, 2003).
10.19** Amended and Restated Helen of Troy 1997 Cash Bonus Performance Plan, dated August 26, 2003
(incorporated by reference to Exhibit 10.1 of Helen of Troy Limited's Quarterly Report on Form
10-Q for the period ended August 31, 2003 (the August 2003 10-Q)).
10.20
10.21
10.22
10.23
10.24
10.25
10.26
21*
23*
31.1*
31.2*
Credit Agreement, dated as of June 1, 2004, among Helen of Troy L.P., Helen of Troy Limited,
Bank of America, N.A. and the other lenders party thereto(incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed on June 3, 2004).
Term Loan Credit Agreement, dated as of June 1, 2004, among Helen of Troy L.P., Helen of Troy
Limited, Banc of America Mezzanine Capital, LLC and the other lenders party thereto
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on
June 3, 2004).
Guaranty, dated as of June 1, 2004, made by Helen of Troy Limited (Bermuda), Helen of Troy
Limited (Barbados), Hot Nevada, Inc., Helen of Troy Nevada Corporation, Helen of Troy Texas
Corporation, Idelle Labs Ltd. and OXO International Ltd., in favor of Bank of America, N.A. and
other lenders, pursuant to the Credit Agreement, dated June 1, 2004 (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on June 3, 2004).
Guaranty, dated as of June 1, 2004, made by Helen of Troy Limited (Bermuda), Helen of Troy
Limited (Barbados), Hot Nevada, Inc., Helen of Troy Nevada Corporation, Helen of Troy Texas
Corporation, Idelle Labs Ltd. and OXO International Ltd., in favor of Banc of America Mezzanine
Capital, LLC and other lenders, pursuant to the Term Loan Credit Agreement, dated June 1, 2004
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on
June 3, 2004).
Note Purchase Agreement, dated June 29, 2004, by and among Helen of Troy Limited (Bermuda),
Helen of Troy L.P., Helen of Troy Limited (Barbados) and the purchasers listed in Schedule A
thereto(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed on July 2, 2004).
Amendment to Employment Agreement between Helen of Troy Limited and Gerald J. Rubin,
dated March 1, 1999 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed on April 26, 2005).
Purchase and Sale Agreement between Helen of Troy L.P. (“Purchaser”) and DTC Eastgate 1,
LLC (“Seller”), effective May 2, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on May 6, 2005).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
93
32.1*
32.2*
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
94
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
May 16, 2005
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.
/s/ Gerald J. Rubin /s/ Thomas J. Benson
Gerald J. Rubin
Chairman of the Board, Chief Executive Officer,
President, Director and Principal Executive Officer
May 16, 2005
Thomas J. Benson
Senior Vice President, Chief Financial Officer
May 16, 2005
/s/ Richard J. Oppenheim
Richard J. Oppenheim
Financial Controller and Principal Accounting
Officer
May 16, 2005
/s/ Stanlee N. Rubin
Stanlee N. Rubin
Director
May 16, 2005
/s/ Byron H. Rubin
Byron H. Rubin
Director
May 16, 2005
/s/ John B. Butterworth
John B. Butterworth
Director
May 16, 2005
/s/ James C. Swaim
James C. Swaim
Director
May 16, 2005
/s/ Darren G. Woody
Darren G. Woody
Director
May 16, 2005
/s/ Gary B. Abromovitz
Gary B. Abromovitz
Director, Deputy Chairman of the Board
May 16, 2005
/s/ Christopher L. Carameros
Christopher L. Carameros
Director
May 16, 2005
/s/ Timothy F. Meeker
Timothy F. Meeker
Director
May 16, 2005
95
SUBSIDIARIES OF THE REGISTRANT
Name
Incorporation
Costa Rica
France
Germany
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hungary
Jamaica
Luxembourg
Barbados
Helen of Troy Limited
Barbados
HOT International Marketing Limited
Brazil
Helen of Troy do Brasil Ltda.
Cayman Islands
H.O.T. Cayman Holding
Cayman Islands
Helen of Troy (Cayman) Limited
Helen of Troy Chile, S.A.
Chile
Helen of Troy Consulting (Shenzhen) Company Limited China
Helen of Troy Costa Rica, S.A.
Helen of Troy SARL
Helen of Troy GmbH
Asia Pacific Liaison Services Limited
Helen of Troy (Far East) Limited
Helen of Troy Manufacturing Limited
Helen of Troy Services Limited
Helen of Troy Services KFT
HOT (Jamaica) Limited
H.O.T. (Luxembourg) SARL
Helen of Troy Comercial Offshore de Macau Limitada Macao
Mexico
Helen of Troy de Mexico S.de R.L. de C.V.
Mexico
Helen of Troy Servicios S.de R.L. de C.V.
Nevada
Helen of Troy Canada, Inc.
Nevada
Helen of Troy Nevada Corporation
Nevada
Helen of Troy, LLC
Nevada
HOT Latin America, LLC
Nevada
HOT Nevada Inc.
Nevada
Idelle Management Company
Nevada
OXO International Inc.
New Jersey
Karina, Inc.
Texas
DCNL, Inc.
Texas
Helen of Troy Texas Corporation
Texas Limited Partnership
Helen of Troy L.P.
Texas Limited Partnership
Idelle Labs, Ltd.
Texas Limited Partnership
OXO International Ltd.
The Netherlands
Helen of Troy International B.V.
United Kingdom
HOT (UK) Limited
Uruguay
Fontelux Trading, S.A.
96
EXHIBIT 23
Doing
Business as
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Helen of Troy Limited:
We consent to the incorporation by reference in the registration statements No. 33-75832, No. 333-
11181, No. 333-67349, No. 333-67369, No. 333-90776, and No. 333-103825 on Form S-8, and the registration
statement No. 333-99295 on Form S-3, of Helen of Troy Limited and subsidiaries of our reports dated May 14,
2005, with respect to the consolidated balance sheets of Helen of Troy Limited and subsidiaries as of February
28, 2005 and February 29, 2004, and the related consolidated statements of income, stockholders’ equity and
comprehensive loss, and cash flows and related financial statement schedule for each of the years in the three-
year period ended February 28, 2005, and the related financial statement schedule, management’s assessment of
the effectiveness of internal control over financial reporting as of February 28, 2005 and the effectiveness of
internal control over financial reporting as of February 28, 2005, which reports appear in the February 28, 2005
annual report on Form 10-K of Helen of Troy Limited.
El Paso, Texas
May 14, 2005
/s/ KPMG LLP
97
The following certification includes references to an evaluation of the effectiveness of the design and operation of
the company’s “disclosure controls and procedures” and to certain matters related to the company’s “internal control over
financial reporting.” Item 9A of Part II of this Annual Report presents the conclusions of the CEO and the CFO about the
effectiveness of the company’s disclosure controls and procedures based on and as of the date of such evaluation (relating
to Item 4 of the certification), and contains additional information concerning disclosures to the company’s Audit
Committee and independent auditors with regard to deficiencies in internal control over financial reporting and fraud and
related matters (Item 5 of the certification).
Exhibit 31.1
CERTIFICATION
I, Gerald J. Rubin, certify that:
1. I have reviewed this annual report on Form 10-K of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects, the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; and
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
98
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: May 16, 2005
/s/ Gerald J. Rubin
Gerald J. Rubin
Chairman of the Board, Chief Executive Officer,
President and Principal Executive Officer
99
The following certification includes references to an evaluation of the effectiveness of the design and operation of
the company’s “disclosure controls and procedures” and to certain matters related to the company’s “internal control over
financial reporting.” Item 9A of Part II of this Annual Report presents the conclusions of the CEO and the CFO about the
effectiveness of the company’s disclosure controls and procedures based on and as of the date of such evaluation (relating
to Item 4 of the certification), and contains additional information concerning disclosures to the company’s Audit
Committee and independent auditors with regard to deficiencies in internal control over financial reporting and fraud and
related matters (Item 5 of the certification).
Exhibit 31.2
CERTIFICATION
I, Thomas J. Benson, certify that:
1. I have reviewed this annual report on Form 10-K of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects, the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; and
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
100
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: May 16, 2005
/s/ Thomas J. Benson
Thomas J. Benson
Senior Vice President and Chief Financial Officer
101
CERTIFICATION
Exhibit 32.1
I, Gerald J. Rubin hereby certify, for the purposes of section 1350 of chapter 63 of title 18 of the United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as Chairman of
the Board, Chief Executive Officer, President and Principal Executive Officer of Helen of Troy Limited (the
"Company"), that, to my knowledge, the Annual Report of Helen of Troy Limited on Form 10-K for the period
ended February 28, 2005, fully complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in all material respects, the financial
condition and results of operation of the Company.
Date: May 16, 2005
/s/ Gerald J. Rubin
Gerald J. Rubin
Chairman of the Board, Chief Executive Officer,
President and Principal Executive Officer
102
CERTIFICATION
Exhibit 32.2
I, Thomas J. Benson hereby certify, for the purposes of section 1350 of chapter 63 of title 18 of the United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as Senior
Vice President, Chief Financial Officer and Principal Accounting Officer of Helen of Troy Limited (the
"Company"), that, to my knowledge, the Annual Report of Helen of Troy Limited on Form 10-K for the period
ended February 28, 2005, fully complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in all material respects, the financial
condition and results of operation of the Company.
Date: May 16, 2005
/s/ Thomas J. Benson
Thomas J. Benson
Senior Vice President and Chief Financial Officer
103
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911247ADP_BK_R2 6/10/05 10:16 AM Page 6
Corporate Officers and Directors
Board of Directors
Gerald J. Rubin
Chairman, Chief Executive Officer and President
Gary B. Abromovitz
Director
Stanlee N. Rubin
Director
Christopher L. Carameros
Director
Byron H. Rubin
Director
John B. Butterworth
Director
Timothy F. Meeker
Director
Adolpho R. Telles
Director
Darren G. Woody
Director
Officers
Gerald J. Rubin
Chairman, Chief Executive Officer and President
Arthur A. August
Executive Vice President, Sales, Marketing – Appliances and Professional
Division
Christopher L. Carameros
Executive Vice President, Finance, Accessories, International, OXO
International, and Idelle Labs
Donald Hall
Senior Vice President, Manufacturing
Robert D. Spear
Senior Vice President and Chief Information Officer
Rosanna Hall
Senior Vice President, Purchasing
Alex Lee
President, OXO International
Kevin James
Senior Vice President, International
Michael Cafaro
Senior Vice President, New Product Development and Engineering
Alan Ames
Senior Vice President, Sales – Accessories
Jack Jancin
Senior Vice President, Idelle Labs
Thomas J. Benson
Senior Vice President and Chief Financial Officer
James R. Cooper
Vice President, Product Procurement and Forecasting
Felix Chavez
Vice President, Sales Operations
Larry Witt
Vice President, Sales and Marketing – OXO International
Robert C. Johnson
Vice President, Management Information Systems
Scott Viola
Vice President, Sales – Appliances
Stuart Fox
Vice President, Sales – Appliances
Scott Hagstrom
Vice president, Sales – Professional Division
Omar A. Tovar
Vice President, Distribution and Logistics
Scott Thrasher
Vice President, Sales – Appliances
Coquis Casavantes
Vice President, Corporate Tax Director
Vincent D. Carson
Vice President, General Counsel and Secretary
John Boomer
Vice President, Corporate Business Development
Carlos Jovel
Vice President, Latin America
John Hunnicutt
Vice President, Marketing – Idelle Labs
Perry Sansone
Vice President, Sales – Idelle Labs
Uma Tripathi
Vice President, R&D – Idelle Labs
Diana Lesanics
Vice President, Marketing – Accessories
Melinda Jordan
Vice President, Human Resources
Janet Skibo-Estrada
Vice President, Executive Administration
Deanna Nasser
Corporate Treasurer
Rick Oppenheim
Corporate Controller – Finance
Oscar Gereda
Corporate Controller – Operations
Shareholders’Annual Meeting
Stock Traded Over the Counter
National NASDAQ Symbol: HELE
Registrar,Transfer Agent and Dividend Disbursing Agent
Computershare Investor Service, LLC
2 North La Salle Street
Chicago, Illinois 60602
The Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held on
Tuesday, August 2, 2005, at one o’clock p.m. at the
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 shareholder free of charge on
request to the Chief Financial Officer or Secretary of the Company.
911247ADP_BK_R2 6/10/05 10:16 AM Page 7
Meeting Consumer Needs
F
or more than 35 years, Helen of Troy has built
a diverse range of products, from stainless steel bowls with
a tradition of designing, developing and marketing
nonslip exteriors, trash cans with a patented bag retention feature
a variety of innovative, high-quality beauty
that secures bags, organization clips that keep everything from
and personal care products. Its strong market
pictures to electrical cords orderly, and flexible food turners in a
performance results from providing customer products
wide range of colors. One new product, the OXO Good Grips®
with unique features and superior product functionality
Mandoline, received a rating of “Perfect” from the Washington
at each price point, all marketed under the most instantly
Post. The Mandoline and trash cans successfully broke new high
recognizable and trusted brand names. This dedication to
pricing ground for OXO,
innovation and meeting customer needs is evident in our two most
demonstrating the strength of
newest businesses, Idelle Labs and OXO International.
the brand name. OXO products
Through its Idelle Labs division, the Company is capitalizing
were featured in more than 110
on the rigorous growth currently
taking place in the Men’s Grooming,
Skin Care and Hair Care categories
of mass-marketed health and beauty
skin
products. Helen of Troy’s strategy
of reinvigoration through innovation
in formula development, packaging,
brand positioning, advertising and
promotion has allowed Idelle
to bring new life to iconic,
well-established brands such as
skin
skin
Brut and Sea Breeze
magazines, averaged 12
newspaper stories each week,
and were seen on more than two
dozen Food Network and PBS
cooking shows. In the coming
OXO Tea Kettle and Mandoline
year, OXO will launch over 85 items that branch into several new
areas and expand existing product lines. Entering into soft goods,
patented silicone textiles with fabric interiors are a category first.
The kettle category will quadruple with three new kettle shapes in
a diverse color pallette. New soft-handled cutlery will pair
moderate price points with high quality for a compelling value,
Brut®, Sea Breeze®, Final Net® and Vitalis®. The Company sees a
and garden, kitchen,
growth-building opportunity in a retail setting that complements
cleaning and pantryware
its other beauty businesses. Recently, Sea Breeze and
categories will be
Final Net launched new product formulas designed
to help the brands reach a younger consumer
segment. Brut began an exciting sponsorship
with the National Hot Rod Association that will
aggressively expanded.
The future of OXO will
continue to be marked by
success, innovation and
facilitate the brand’s connection with men, using a
growth.
wide spectrum of advertising and promotional
tactics, and Vitalis benefited from its sponsorship of
the Vitalis Sun Bowl.
For years Helen of
Troy’s product innovations
have made huge impacts in
Helen of Troy’s recently acquired OXO International
the cutting-edge professional
subsidiary continues to set the standard for product innovation.
salon market, where the
Professional WIGO Sensor Dryer
and Jade Straightener
Having established its name as synonymous with quality,
Company has been the technological vanguard with the Wigo®, Hot
functionality and innovative design, OXO continues to move
Tools®, and HotSpa® brands. Breakthroughs such as jade plates in
beyond the kitchen gadget business into new and exciting product
straighteners that transfer high temperatures and maintain heat
lines. Last year, OXO launched nearly 97 new products, which
longer than conventional straighteners, and the Wigo Sensor Touch™
included entry into the trash can business. New products include
dryer with an automatic shut-off feature provide professional
skin
911247ADP_BK_R2 6/10/05 10:16 AM Page 8
skin
stylists the high quality, performance, and flexibility their field
range of styling irons, straighteners, hairsetters and dryers as well as
demands. The Company continues to develop new styling
hair clippers and trimmers, with exceptional quality and value.
innovations and technologies, cementing its dominance in
Helen of Troy has also recently introduced Health o meter®
professional styling salons worldwide.
skin
In keeping with Revlon’s long tradition of glamour and beauty,
personal wellness products, a complete line of massagers
and footbaths specially designed to rejuvenate and revitalize
the Company’s Revlon Perfect Heat® styling irons bring high-heat
the body. The Company looks forward to expanding the
skin
skin
Revlon Perfect Heat® Iron, Ceramic Straightener and Lady Shaver
Health o meter® line in this steadily
growing market.
The Company’s reach in hair
care product expertise goes beyond
appliances with a wide selection of
brushes, combs and trendy hair
accessories under the Revlon and
ceramic styling technology to the home, and the new ladies’shavers
Vidal Sassoon names. The Karina
and trimmers feature ceramic cutting blades for a closer, more
line continues to be recognized
Brushes, Combs and Accessories
comfortable shave. Revlon Spa appliances and gift sets deliver a
skin
wide array of spa-quality skin, facial and nail treatments to
worldwide for top quality and style.
The Company has also expanded its
skin
consumers who feel the need to indulge themselves.
market share internationally with products
Helen of Troy also markets numerous products under the Vidal
found in homes throughout Europe, Asia
Sassoon banner, including a new line
of professional-quality styling tools
under the Vidal Sassoon Studio
Tools™ sub-brand. Best-selling hair
straightening and styling irons
incorporate ionic, ceramic and
gold-plating technologies for
beautiful, long lasting styles.
To relieve today’s various
stresses and strains, the Company’s
Dr. Scholl’s line sets the market
Vidal Sassoon Dryer and
Studio Tools™ Styling Iron
and Latin America. The UK has extended
the Vidal Sassoon line to include clippers
and trimmers featuring innovative ionic
and ceramic technology. The Company
has opened a Latin American headquarters
in Mexico City and has increased its presence
Vidal Sassoon Clipper
in Peru, Chile, Venezuela, Brazil, Panama and the Caribbean.
In Mexico, Helen of Troy has become the leader in the growing
hair straightener category through its introduction of advanced
ceramic technology.
In addition to Helen of Troy’s commitment to unparalleled
standard for the finest in personal care solutions. From footbaths
innovation and new technologies, the Company realizes the
with Smart Heat technology to massage cushions and hand-held
importance of service to consumers worldwide with a customer-
massagers with innovative, patented design technology, the Dr.
first strategy that emphasizes top-quality products and satisfaction.
Scholl’s line provides head-to-toe relief with a trusted household
Customers, ensured that their needs are our main priority, reward us
name.
with repeat business and trust, enabling us to build a solid
Consumers’trust in Helen of Troy carries through to its
foundation of long-lasting loyalty in highly competitive markets
Sunbeam-brand personal care appliances, which feature a full
worldwide.
Vidal Sassoon and related logos are trademarks of The Procter & Gamble Company used under license by Helen of Troy / 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) / Vitapointe® is a registered trademark of Sara Lee Household and Body Care UK Limited / Sea Breeze® is a
registered trademark of Shiseido Company, Ltd. / Sunbeam®, Health at Home® and Health o meter® are trademarks used under license from
Sunbeam Products, Inc.
911247ADP_BK_R2 6/10/05 10:16 AM Page 1
Helen of Troy®
One Helen of Troy Plaza • El Paso, Texas 79912 USA
Phone 915.225.8000 • Fax 915.225.8081
www.HelenofTroyUSA.com