VERSION 7.0
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 29, 2008
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)
Clarenden House
Church Street
Hamilton, Bermuda
(Address of principal executive offices)
1 Helen of Troy Plaza
El Paso, Texas
(Registrant’s United States Mailing Address )
74-2692550
(I.R.S. Employer
Identification No.)
79912
(Zip Code)
Registrant's telephone number, including area code: (915) 225-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, $.10 par value per share
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 31, 2007, based upon
the closing price of the common stock as reported by The NASDAQ Global Select Market on such date, was approximately $650,396,000.
As of May 7, 2008 there were 30,198,198 shares of Common Shares, $.10 par value per share, outstanding.
Certain information required for Part III of this annual report will be set forth in and incorporated herein by reference into Part III of this report from
the Company’s definitive Proxy Statement for the 2008 Annual General Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
Index to Exhibits - Page 112
VERSION 7.0
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
VERSION 7.0
PAGE
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Item 6.
Item 7.
Purchases of Equity Securities
Selected Financial Data
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, Executive Officers and Corporate Governance
Executive Compensation
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
1
3
13
21
22
23
24
25
28
30
53
59
106
107
107
108
108
108
108
108
109
111
In this report and accompanying consolidated financial statements and notes thereto, unless the context suggests
otherwise or otherwise indicated, references to "the Company," "our Company," "Helen of Troy," "we," "us" or "our" refer
to Helen of Troy Limited and its subsidiaries, and amounts are expressed in thousands of U.S. Dollars.
VERSION 7.0
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by our Company and subsidiaries 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 (“SEC”), in press releases,
and in certain other oral and written presentations. Generally, the words "anticipates", "believes", "expects", "plans",
"may", "will", "should", "seeks", "estimates", “project”, "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 and are based
upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and
assumptions, but there can be no assurance that we will realize our expectations or that our assumptions will prove
correct.
Forward-looking statements are subject to risks that could cause them to differ materially from actual results.
Accordingly, we caution readers not to place undue reliance on forward-looking statements. We believe that these risks
include but are not limited to the risks described in this report under "Item 1A. Risk Factors" and that are otherwise
described from time to time in our SEC reports filed after this report. As described later in this report, such risks,
uncertainties and other important factors include, among others:
•
the departure and recruitment of key personnel;
• our ability to deliver products to our customers in a timely manner and according to their fulfillment standards;
•
requirements to accurately project product demand and the timing of orders received from customers;
• our relationship with key customers;
•
the costs of complying with the business demands and requirements of large sophisticated customers may
adversely affect our gross profit and results of operations;
• our dependence on foreign sources of supply and foreign manufacturing;
•
the impact of high costs of raw materials and energy on cost of sales and certain operating expenses;
• our holding of auction rate securities which we may be unable to liquidate at their recorded values or at all;
•
circumstances which may contribute to future impairments of goodwill or indefinite-lived intangible assets;
• our relationship with key licensors;
• our dependence on the strength of retail economies;
• our ability to develop and introduce a continuing stream of innovative new products to meet changing consumer
preferences;
• our expectation of future acquisitions and issues surrounding the integration of acquired business;
• our use of debt to fund acquisitions and capital expenditures;
•
•
•
the costs, complexity and challenges of managing our global information systems;
the risks associated with a breach of our computer security systems;
the risks associated with tax audits and related disputes with taxing authorities;
• our ability to continue to avoid classification as a controlled foreign corporation; and
•
litigation.
We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information,
future events, or otherwise.
2
PART I
VERSION 7.0
ITEM 1. BUSINESS
GENERAL
We are a global designer, developer, importer and distributor of an expanding portfolio of brand-name consumer
products. We were incorporated as Helen of Troy Corporation in Texas in 1968 and reincorporated as Helen of Troy
Limited in Bermuda in 1994. We have two active segments: Personal Care and Housewares. Our Personal Care products
include hair dryers, straighteners, curling irons, hairsetters, women’s shavers, mirrors, hot air brushes, home hair clippers
and trimmers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs, hair accessories, liquid hair
styling products, men’s fragrances, men’s deodorants, foot powder, body powder, and skin care products. Our
Housewares segment reports the operations of OXO International (“OXO”) whose products include kitchen tools, cutlery,
bar and wine accessories, household cleaning tools, food storage containers, tea kettles, trash cans, storage and
organization products, hand tools, gardening tools, kitchen mitts and trivets, barbeque tools, and rechargeable lighting
products. We use third party manufacturers to produce our goods. Both our Personal Care and Housewares segments sell
their products primarily through mass merchandisers, drug chains, warehouse clubs, catalogs, grocery stores and specialty
stores. In addition, our appliances segment sells to beauty supply retailers and wholesalers.
On May 1, 2007, we acquired Belson Products (“Belson”), formerly the professional salon division of Applica
Consumer Products, Inc. By the end of the third fiscal quarter of fiscal 2008, we had substantially integrated Belson into
our Personal Care segment. Belson was acquired for a cash purchase price of $36,500 plus the assumption of certain
liabilities. This transaction was accounted for as a purchase of a business and was paid for using available cash on hand.
Belson is a supplier of personal care products to the professional salon industry. Belson markets its professional products
to major beauty suppliers and other major distributors under brand names including Belson®, Belson Pro®, Gold ‘N
Hot®, Curlmaster®, Premiere®, Profiles®, Comare®, Mega Hot®, and Shear Technology®. Products include electrical
hair care appliances, spa products and accessories, professional brushes and combs, and professional styling shears.
Belson products are principally distributed throughout the United States, as well as Canada and the United Kingdom. We
believe that Belson’s portfolio of professional salon products, in addition to our existing professional products, will
continue to strengthen our leadership position in the professional distribution channels.
In each of our segments, we strive to be the first to market with a broad line of competitively priced innovative
products. We believe this strategy is one of our most important growth drivers. Our goal is to provide consumers with
unique features, better functionality and higher performance at competitive price points. This strategy has allowed us to
sustain, and in many categories to strengthen, our market position in many of our product lines. 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.
As part of our overarching objective to grow our business and increase shareholder value, we have established
five core initiatives. These initiatives and their key elements are outlined below:
• Maximize high growth potential branded products. We seek to maximize high growth products by
selectively investing in consumer marketing propositions that we believe offer the best opportunities to
capture market share and increase growth. Ten key brands currently account for approximately 86 percent of
our annual net sales volume. When a brand fails to achieve a desired market potential, we evaluate whether to
continue to invest in brand maintenance, exit the brand and/or selectively replace it with revenue streams from
similar, more effectively performing branded products.
• Accelerate our new product pipeline. We strive to reduce the time required to develop and introduce new
products to meet changing consumer preferences and take advantage of opportunities sooner. A majority of
our products are produced in China, where long production lead times are normal. We continuously work
with our manufacturing resources to simplify and shorten the length of our supply chain for new products.
3
VERSION 7.0
• Leverage innovation. We constantly seek ways to foster our culture of innovation and new product
development. We intend to enhance and extend our existing product categories and develop new allied
product categories to grow our business. We believe that new innovative products permit us to generate
higher per unit sales prices and margins for both us and the customers we serve and increase the value of our
brand base.
• Broaden our growth opportunities. We plan to continue to seek opportunities to acquire brands and
product categories through aggressive external development and acquisitions. For example, our recent
acquisition of Belson provided us with nine significant brands that complement and broaden our existing
professional product offerings. When brand acquisition is not possible, we look for licensed brands that have
developed substantial brand equity in product categories that will create synergies with our existing products.
For example, our recent licensing of Bed Head® and Toni&Guy® provides an opportunity to deliver
professional quality appliances and accessories with Bed Head® branded products styled and packaged for
introduction to a younger market through selective retail distribution channels and Toni&Guy® branded
products targeted toward sophisticated retail buyers who appreciate European styling.
• Reduce cost and increase productivity. We seek to control our expenses and strengthen operating margins
by eliminating unnecessary spending, co-innovating with our manufacturers to eliminate costs, leveraging
technology, and making other tools and productivity drivers a key focus of our Company.
We present financial information for each of our operating segments in Note (13) of the consolidated financial
statements. The matters discussed in this Item 1. “Business,” pertain to all existing operating segments, unless otherwise
specified.
4
LICENSES AND TRADEMARKS
We sell certain of our products under licenses from third parties. Our licensed trademarks, among others, include:
VERSION 7.0
• 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 International, PLC;
• Sunbeam® and Health o meter®, licensed from Sunbeam Products, Inc.;
• Sea Breeze®, licensed from Shiseido Company Ltd.;
• Vitapointe®, licensed from Sara Lee Household and Body Care UK Limited;
• Toni&Guy®, licensed from Mascolo Limited and its affiliates; and
• Bed Head®, by TIGI licensed from an affiliate of Mascolo Limited.
We own and market under a number of trademarks, including:
• OXO®
• Good Grips®
• SoftWorks®
• Touchables®
• OXO Steel®
• Candela®
• Brut®
• Brut Revolution®
• Vitalis®
• Final Net®
• Ammens®
• SkinMilk®
• Condition® 3-in-1
• TimeBlock®
• Epil-Stop®
• Salon Tools™
• Studio Tools®
• Hot Things®
• Dazey®
• Caruso®
• Karina®
• Visage Náturel®
• DCNL®
• Nandi®
• Isobel®
• Carel®
• Amber Waves®
We also own and market hair care and beauty care products under the following trademarks to the professional
market:
• Helen of Troy®
• Hot Tools®
• HotSpa®
• Salon Edition®
• Belson®
• Belson Pro®
• Gold ‘N Hot®
• Curlmaster®
• Pro Touch®
• Tourmaline Tools®
• Fusion Tools®
• Gallery Series®
• Wigo®
• Profiles®
• Comare®
• Mega Hot®
• Shear Technology®
5
PRODUCTS
We market and sell a full line of personal care products and an expanding line of housewares products that we
acquire, design and/or develop. The following table lists the primary products we sell and some of the brand names that
appear on those products.
VERSION 7.0
PRODUCT
CATEGORY
Appliances
and
Accessories
Grooming,
Skin Care,
and Hair Care
Products
Housewares
PRODUCTS
BRAND NAMES
Hand-held dryers
Curling irons, straightening irons, hot air
brushes and brush irons
Hairsetters
Paraffin baths, facial brushes, facial saunas and
other skin care appliances
Manicure/pedicure systems
Foot baths
Foot massagers, hydro massagers, cushion
massagers, body massagers and memory foam
products
Hair clippers and trimmers, exfoliators and
shavers
Hard and soft-bonnet hair dryers
Hair styling implements, brushes, combs,
hand-held mirrors, lighted mirrors, utility
implements and decorative hair accessories
Liquid hair styling products
Liquid skin care products
Medicated skin care products
Fragrances, deodorants and antiperspirants
Hair depilatory products
Kitchen tools, cutlery, bar and wine
accessories, kitchen mitts and trivets, and
barbeque tools
Tea kettles
Household cleaning tools and trash cans
Storage and organization products
Hand and garden tools
Rechargeable lighting products
Vidal Sassoon®, Revlon®, Bed Head®, Toni&Guy®,
Sunbeam®, Helen of Troy®, Salon Edition®, Hot Tools®,
Studio Tools®, Fusion Tools™, Tourmaline Tools®, Salon
Tools™, Amber Waves®, Gallery Series®, Wigo®,
Belson Pro®, Curlmaster®, Gold ‘N Hot®, Mega Hot®, Pro
Touch®, Profiles® and Salon Creations®
Vidal Sassoon®, Revlon®, Bed Head®, Toni&Guy®,
Sunbeam®, Helen of Troy®, Salon Edition®, Hot Tools®,
Studio Tools®, Fusion Tools™, Tourmaline Tools®, Salon
Tools™, Amber Waves®,Gallery Series®, Wigo®, Belson®,
Belson Pro®, Curlmaster®, Gold ‘N Hot®, Mega Hot®, Pro
Touch® and Salon Creations®
Vidal Sassoon®, Revlon®, Sunbeam®, Caruso® and Profiles®
Revlon®, Hotspa®, Dr. Scholl's®, Visage Náturel® and
Profiles®
Revlon®, Dr. Scholl's®, Scholl® and Profiles®
Dr. Scholl's®, Scholl®, Revlon®, Sunbeam®, Carel®, HotSpa®
and Profiles®
Dr. Scholl's®, Health o meter®, Carel® and Hotspa®
Vidal Sassoon®, Revlon®, Toni&Guy®, Hot Tools® and Belson
Pro ®
Dazey®, Carel®, Hot Tools® and Gold ‘N Hot®
Vidal Sassoon®, Revlon®, Karina®, Isobel®, DCNL®, Nandi®,
Amber Waves®, Hot Things®, Belson®, Gold ‘N Hot®,
Comare® and Shear Technology®
Vitalis®, Final Net®, Condition® 3-in-1, Ammens® and
Vitapointe®
Sea Breeze® and SkinMilk®
Ammens®
Brut®, Brut Revolution®, Brut XT® and Ammens®
Epil-Stop®
OXO®, Good Grips®, OXO Steel®, SoftWorks® and
Touchables®
OXO®, Good Grips® and Softworks®
OXO®, OXO Steel®, Good Grips®, SoftWorks® and
Touchables®
OXO®, OXO Steel®, Good Grips®, SoftWorks® and
Touchables®
OXO®, Good Grips® and SoftWorks®
OXO® and Candela®
6
VERSION 7.0
We continue to develop new products, respond to market innovations and enhance existing products with the
objective of improving our position in the personal care and housewares markets. Overall, in fiscal 2008, we introduced
526 new products across all of our categories compared to 389 and 474 new products introduced in fiscal 2007 and 2006,
respectively. Of the 526 products introduced during fiscal 2008, 25 of the products introduced were attributed to the
Belson acquisition. Currently, 389 additional new products are in our product development pipeline for expected
introduction in fiscal 2009. The following discussion summarizes key product introductions and strategies we launched
in fiscal 2008:
Appliances and Accessories: In the retail category of our appliance business, our focus for much of fiscal 2008 was the
domestic launch of our Bed Head® hair care appliances that use bright colors, fiber optics, and LED lights as part of their
fashionable design appeal. Bed Head® is targeted at retail consumers who want professional grade products. By fiscal
year-end 2008, Bed Head® had become our third best selling brand in the retail appliance and accessory category (behind
Revlon and Vidal Sassoon), and across all product categories was one of our top ten selling brands. In Europe, we began
marketing our Toni&Guy® line in the second quarter of fiscal 2007 and continued to stabilize and strengthen its
distribution throughout fiscal 2008. Toni&Guy® shares the same approach as Bed Head® in the U.S., offering retail
consumers professional grade products. As of the end of fiscal 2008, Toni&Guy® was our third best selling appliance
brand in Europe.
In our professional appliance category, we acquired Belson effective May 1, 2007. We acquired Belson’s
portfolio of professional salon products in order to strengthen our already existing leadership position in the professional
distribution channels. We spent most of the second and third quarters of fiscal 2008, integrating the Belson business into
our operating infrastructure and staffing positions required for its operations. As we gained knowledge and experience
with the business, we moved quickly to develop new product offerings into its existing brand portfolio and establish more
cost-effective sourcing alternatives. Belson markets under a number of brand names, the most significant under our
ownership being Belson Pro®, Gold ‘N Hot®, Curlmaster®, Profiles®, Comare®, and Salon Creations®.
Men’s Grooming, Skin Care and Hair Care: In our domestic markets, we significantly shifted our men’s grooming,
skin care and hair care strategy during the year. We now intend to focus our line extension efforts principally on the
Brut® family of products, which we believe provides the most attractive opportunity for return on investment in this
category, while maintaining the existing distribution of our other brands. In the fourth quarter of fiscal 2007, we
commenced our domestic re-introduction of the newly formulated Epil-Stop® product line. In response to unsatisfactory
consumer sales and the discontinuance of the Epil-Stop® line by certain retailers, we conducted a strategic review of the
Epil-Stop® trademark in the third quarter of fiscal 2008. We also evaluated the future potential of our TimeBlock® brand
in light of our recent experience with Epil-Stop®. From these reviews, we concluded that the future undiscounted cash
flows associated with these trademarks were insufficient to recover their carrying values. We also believe that any
significant additional investments in these brands will not generate potential returns in line with the Company’s
investment expectations. Accordingly, we recorded pretax impairment charges totaling $4,983 ($4,883 after tax)
representing the total carrying value of these trademarks. We currently expect to continue to hold these trademarks for
use.
In Latin America, we continue to increase men’s grooming, skin care and hair care net sales and market
penetration through a strategy of line extensions in selective markets targeted to reach new customers. In the second half
of the year, we worked on the Brut XT® line of men’s body sprays, which we presently expect to begin selling in Mexico
in the first half of fiscal 2009. We have also developed several product extensions to our Ammens line of skin care
products, including an antibacterial gel, deodorants and selected baby products, that should commence distribution in the
first half of fiscal 2009.
Housewares: Our OXO® brands continue to exert significant influence in the U.S. kitchen gadget and tool markets.
OXO® products are based on the principles of Universal Design - a philosophy of making products that are easy to use
for the widest possible spectrum of users. Our development pipeline in this segment is extremely robust. In fiscal 2008,
we launched over 120 new items and currently have over 100 items scheduled for launch in fiscal 2009. During the 2008
fiscal year, we launched our Good Grips® POP modular line of food storage containers which began shipping during the
third quarter of fiscal 2008 and quickly became a top selling product category within our Housewares segment. These
containers are airtight, stackable and space-efficient. New product offerings such as silicone utensils, sinkware, shower
7
caddies and travel mugs also added significant incremental sales. Overall, in fiscal 2008, significant new product
introductions accounted for approximately $16,000 in incremental sales growth in the Housewares segment.
You can learn more about our products at 0
Hwww.hotus.com. Information contained on the Company’s website is
not included as a part of, or incorporated by reference into, this report.
VERSION 7.0
SALES AND MARKETING
We now market our products in approximately 70 countries throughout the world. Sales within the United States
comprised approximately 78, 81 and 83 percent of total net sales in fiscal 2008, 2007, and 2006, respectively. We sell our
products through mass merchandisers, drug chains, warehouse clubs, catalogs, grocery stores, specialty stores, beauty
supply retailers and wholesalers and distributors, as well as directly to end-user consumers. We collaborate extensively
with our retail customers and in many instances produce specific versions of our product lines with exclusive designs and
packaging for their stores, which are appropriately priced for their respective customer bases.
We market products through a combination of outside sales representatives and our own internal sales staff,
supported by our internal marketing, category management, engineering, creative services and customer service staff.
These groups work closely together to develop pricing and distribution strategies and to design packaging and develop
product line extensions and new products.
Regional sales and business unit managers work with our inside and outside sales representatives. Our sales
managers are organized by product group and geographic area and, in some cases, key customers. Our regional managers
are responsible for customer relations management, pricing, distribution strategies and sales generation.
The companies from whom we license many of our brand names promote those names extensively. The Revlon®,
Vidal Sassoon®, Dr. Scholl's®, Bed Head® 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 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.
We also use selective sports and entertainment venues to enhance our brand recognition and equity. In fiscal
2004, Helen of Troy became the title sponsor of the Sun Bowl game, 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” was the
official name for the December 2004 and 2005 games. In fiscal 2007, we extended our agreement through the 2009
football season and changed the official name beginning with the December 2006 game to the “Brut® Sun Bowl.” CBS
Sports broadcasts the "Brut® Sun Bowl" game to nationwide audiences.
MANUFACTURING AND DISTRIBUTION
We contract with unaffiliated manufacturers in the Far East, primarily in the Peoples' Republic of China, to
manufacture a significant portion of our products in the appliance, accessories and housewares product categories. Most
of our grooming, skin care and hair care products are manufactured in North America. For a discussion regarding our
dependency on third party manufacturers, see Item 1A., "Risk Factors." For fiscal 2008, 2007 and 2006, goods
manufactured by vendors in the Far East comprised approximately 87, 83 and 86 percent, respectively, of the dollar value
of all segments’ inventory purchases.
Many of our key Far East manufacturers have been doing business with us since we went into business. In some
instances, we are now working with the second generation of entrepreneurs from the same families. We believe these
relationships give us a stable and sustainable advantage over many of our competitors.
Manufacturers who produce our products use formulas, molds, and certain other tooling, some of which we own,
in manufacturing those products. Both of our business segments employ numerous technical and quality control
8
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
H
0
VERSION 7.0
personnel responsible for ensuring high product quality. Most of our products manufactured outside the countries in
which they are sold are subject to import duties, which increases the amount we pay to obtain such products.
Our customers seek to minimize their inventory levels and often demand that we fulfill their orders within
relatively short time frames. Consequently, our policy is to maintain several months of supply of inventory in order to
meet our customers’ needs. Accordingly, we order products substantially in advance of the anticipated time of their sale to
our customers. While we do not have any long-term formal arrangements with any of our suppliers, in most instances, we
place purchase orders for products several months in advance of receipt of orders from our customers. Our relationships
and arrangements with most of our manufacturers allow for some flexibility in modifying the quantity, composition and
delivery dates of orders. Most purchase orders are in United States Dollars. Because of our long lead times, from time to
time we must discount end of model product or dispose of it in non-traditional ways to eliminate excess inventories.
In total, we occupy approximately 1,987,000 square feet of distribution space in various locations to support our
operations. At the end of February 2007, we completed the consolidation of our domestic appliance, housewares, men’s
grooming, skin care and hair care inventories into a single 1,200,000 square foot Southaven, Mississippi distribution
center. Approximately 69 percent of our consolidated sales volume shipped from this facility in fiscal 2008. For a further
discussion of the risks associated with our distribution capabilities, see Item 1A., "Risk Factors." 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 distribution centers in El Paso, Texas; Southaven, Mississippi;
and Toronto, Canada, or directly to customers. We ship substantially all products to North American customers from these
distribution centers by ground transportation services. Products sold outside the United States and Canada are shipped
from manufacturers, primarily in the Far East, to distribution centers in the Netherlands, the United Kingdom, Mexico,
Brazil, Peru, Venezuela or directly to customers. We then ship products stored at these international distribution centers
to distributors or retailers.
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®, Health o meter®, Dr. Scholl's®, Bed Head® and Toni&Guy®
trademarks are of particular importance to this segment’s business. New product introductions under licensed trademarks
require approval from the respective licensors. The licensors must also approve the product packaging. Many of our
license agreements require us to pay minimum royalties, meet minimum sales volumes, and make minimum levels of
advertising expenditures. To our knowledge, during fiscal 2008, we were in compliance with all terms of these licensing
agreements. The remaining duration of the license agreements for the Revlon®, Vidal Sassoon®, Sunbeam®, Dr.
Scholl's®, Bed Head® and Toni&Guy® trademarks, including the renewal terms, are approximately 55, 25, 12, 11, 6 and
5 years, respectively. If we decide to renew these agreements upon expiration of their current terms, we will be required to
pay prescribed renewal fees at the time of that election. The discussion below covers the primary product categories that
we currently sell under our key 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.
Revlon®: 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.
Vidal Sassoon®: Under an agreement with The Procter & Gamble Company, Helen of Troy is licensed to sell
certain products bearing this 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 trimmers, mirrors,
brushes, combs, and hair care accessories.
Dr. Scholl's® and Scholl®: 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 SSL International, PLC.
9
VERSION 7.0
Sunbeam® and Health o meter®: Under an agreement with Sunbeam Products, Inc., we are licensed to sell
hair clippers and 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 these trademarks in the United States, Canada, Mexico, Central America, South
America, and the Caribbean.
Sea Breeze®: We license the right to sell products in the United States, Canada, and the Caribbean under this
trademark pursuant to a perpetual royalty free license from Shiseido Company Ltd. We currently sell a line of liquid skin
care products under this name in the United States and Canada.
Toni&Guy® and Bed Head®: Under an agreement with Mascolo Limited, we are licensed to sell hair care
appliance products under the Toni&Guy® trademark in Western Europe and portions of Asia. The license agreement is
for five years, and may be extended an additional two years upon proper notice.
In December 2006, we also entered into two separate licensing arrangements with affiliates of Mascolo Limited
for the use of the Bed Head® by TIGI trademark and for the use of the Toni&Guy® trademark. Both licenses grant us the
right to use the trademarks to market personal care products in the Western Hemisphere. The initial terms of each license
agreement expires in December 2011, and may be extended for five additional three-year terms upon proper notice.
Helen of Troy has filed or obtained licenses for over 500 design and utility patents in the United States and
several foreign countries. Most of these patents cover product designs in our Housewares segment, and over two-thirds of
these are utility patents. We believe the loss of the protection afforded by any one of these patents would not have a
material adverse effect on our business as a whole. 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.
We believe our principal trademarks have high levels of brand name recognition among retailers and consumers
throughout the world. In addition, we believe our brands have an established reputation for quality, reliability and value.
We monitor and protect our brands against infringement as we deem appropriate, however, 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 jurisdictions.
CUSTOMERS
Sales to Wal-Mart Stores, Inc. (including its affiliate, SAM'S Club) accounted for approximately 19, 21 and 22
percent of our net sales in fiscal 2008, 2007, and 2006, respectively. Sales to Target Corporation accounted for
approximately 9, 9 and 10 percent of our net sales in fiscal 2008, 2007, and 2006, respectively. No other customers
accounted for ten percent or more of net sales during those fiscal years. Sales to our top five customers accounted for
approximately 44, 45 and 46 percent in fiscal 2008, 2007, and 2006, respectively.
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 usually is no significant backlog of orders in any of our distribution channels.
COMPETITIVE CONDITIONS
The markets in which we sell our products are very competitive and highly mature. The rapid growth of large
mass merchandisers, together with changes in consumer shopping patterns, have contributed to a significant consolidation
of the consumer products retail industry and the formation of dominant multi-category retailers with strong negotiating
power. Current trends among retailers include fostering high levels of competition among suppliers, the requirement to
maintain or reduce prices and deliver products under shorter lead times. Another current trend is for retailers to import
generic products directly from foreign sources and to source and sell products under their own private label brands that
compete with our Company’s products. We believe that we have certain key competitive advantages, such as well
recognized brands, engineering expertise and innovation, sourcing and supply chain know-how, and productive co-
development relationships with our Far East manufacturers, some of which have been built over 30 years or more of
10
VERSION 7.0
working together. We believe these advantages allow us to bring our retailers a value proposition in our products that can
significantly out-perform private label products. 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 Conair Corporation, Farouk Systems, Inc. (Chi),
T3 Micro, Inc., International Consulting Associates, Inc. (InfraShine), Spectrum Brands, Inc., Goody Products, Inc., a
division of Newell Rubbermaid, Inc., Homedics-U.S.A, Inc., Chattem, Inc., KAO Brands Company, The Procter &
Gamble Company, L′Oréal, Unilever, and Alberto-Culver Company. In the Housewares segment, the competition is
highly fragmented. Our primary competitors in that segment include KitchenAid (Lifetime Brands, Inc.), Zyliss AG,
Copco (Wilton Industries, Inc.), Simple Human, Casabella and Interdesign, Inc. 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 32, 34, and
34 percent of fiscal 2008, 2007 and 2006 net sales, respectively. Our lowest net sales usually occur in our first fiscal
quarter, which accounted for approximately 22, 21 and 22 percent of fiscal 2008, 2007 and 2006 net sales, respectively.
As a result of the seasonality of sales, our working capital needs fluctuate during the year.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to national, state, local and provincial jurisdictions’ environmental and health and
safety laws and regulations, including those that impose workplace standards and regulate the discharge of pollutants into
the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and
disposal of materials and substances including solid and hazardous wastes. We believe that we are in material compliance
with these laws and regulations. Further, the cost of maintaining compliance has not had a material adverse effect on our
business, consolidated results of operations and consolidated financial condition, nor do we expect it to do so in the
foreseeable future. Due to the nature of our operations and the frequently changing nature of environmental compliance
standards and technology, we cannot predict with any certainty that future material capital or operating expenditures will
not be required in order to comply with applicable environmental laws and regulations.
In July 2006, RoHS (Restriction of Hazardous Substances), a new European Directive became effective. RoHS
requires that electrical and electronic equipment sold in the European Union comply with certain requirements regarding
maximum allowable levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyls (PBBs), and
polybrominated diphenyl ethers (PBDEs). We became RoHS compliant at the time the directive was effective.
Our electrical products must meet the safety standards imposed in various national, state, local, and provincial
jurisdictions. In the U.S., we maintain our own testing facilities that have been certified by various recognized public and
private testing standards setting groups including Underwriters Laboratories, Inc. and Intertek Testing Laboratories. We
also are certified under the Scheme of the International Electrotechnical Commission System for Conformity Testing and
Certification of Electrical Equipment (IECEE). The scheme facilitates the international exchange and acceptance of
product-safety test results among participating Certification Bodies (CB) for national approval or certification in one or
more countries, normally without the need for additional testing. Currently, 50 countries participate in the CB scheme,
which provides significant advantages including reduction of product certification and compliance costs and reduced
certification lead-times.
Certain of our skin care products are regulated by the United States Food and Drug Administration (“FDA”).
Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated products, establishes
ingredients and manufacturing procedures for certain products, establishes standards of identity for certain products,
determines the safety of products and establishes labeling standards and requirements. In addition, various states regulate
these products by enforcing federal and state standards of identity for selected products, limiting the volatility and types of
aerosol agents that can be used, grading products, inspecting production facilities and imposing their own labeling
requirements.
11
In our Housewares segment, where applicable, our products are designed to comply with NSF International and
American National Standards Institute (“ANSI”) standards for product quality, materials composition and safety.
VERSION 7.0
EMPLOYEES
As of fiscal year end 2008, we employed 931 full-time employees in the United States, Canada, Macao, China,
Japan, Europe, Brazil, Peru, Venezuela, Chile and Mexico of which 151 are marketing and sales employees, 259 are
distribution employees, 47 are engineering and development employees, and 474 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 (13) to the consolidated financial statements contains geographic information concerning our net sales and
long-lived assets.
AVAILABLE INFORMATION
We maintain our main Internet site at the following address: 1
Hhttp://www.hotus.com. The information contained on
this website is not included as a part of, or incorporated by reference into, this report. We make available on or through
our main 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 SEC in accordance with the Securities Exchange Act of 1934, as amended (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 shares 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.
12
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
H
1
VERSION 7.0
ITEM 1A. RISK FACTORS
The ownership of our common shares involves a number of risks and uncertainties. When evaluating us and our
business before making a decision regarding investment in our securities, potential investors should carefully consider the
risk factors and uncertainties described below, together with other information contained in this report. If any of the
events or circumstances described below or elsewhere in this report actually occur, our business, financial condition or
results of operations could be materially adversely affected. The risks listed below are not the only risks that we face.
Additional risks that are presently unknown to us or that we currently think are not significant may also impact our
business operations.
We rely on our chief executive officer and a small number of other key senior managers to operate our business. The
loss of any of these individuals could have a material adverse effect on our business.
We do not have a large group of senior managers in our business. The loss of our chief executive officer or any
of our senior managers could have a material adverse effect on our business, financial condition and results of operations,
particularly if we are unable to hire or relocate and integrate suitable replacements on a timely basis or at all. Further, in
order to continue to grow our business, we will need to expand our 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 otherwise
have a material adverse effect on our business.
Our ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards
are subject to several factors, some of which are beyond our control.
Retailers place great emphasis on timely delivery of our products for specific selling seasons, especially during
our third fiscal quarter, and on the fulfillment of consumer demand throughout the year. We cannot control all of the
various factors that might affect product delivery to retailers. Vendor production delays, difficulties encountered in
shipping from overseas as well as customs clearance are on-going risks of our business. We also rely upon third-party
carriers for our product shipments from our distribution centers to customers, and we rely on the shipping arrangements
our suppliers have made in the case of products shipped directly to retailers from the suppliers. Accordingly, we are
subject to risks, including labor disputes, inclement weather, natural disasters, possible acts of terrorism, availability of
shipping containers and increased security restrictions, associated with such carriers’ ability to provide delivery services
to meet our shipping needs. Failure to deliver products in a timely and effective manner to retailers could damage our
reputation and brands and result in loss of customers or reduced orders.
To make our distribution operations more efficient, we have consolidated many of our U.S. distribution, receiving
and storage functions into our Southaven, Mississippi distribution center. Approximately 69 percent of our consolidated
sales volume shipped from this facility in fiscal 2008. For this reason, any disruption in our distribution process in this
facility, even for a few days, could adversely effect our business and operating results.
Additionally, our Mississippi distribution center operations have grown to a level where we may incur capacity
constraints during our peak shipping season, which occurs during our third fiscal quarter each year. These and other
factors described above could cause delays in delivery of our products and increases in shipping and storage costs that
could have a material and adverse effect on our business and operating results.
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 require long-term purchase commitments from our major customers and the customer
13
VERSION 7.0
order and ship process is very short, it is difficult for us to accurately predict the amount of our future 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 and due to other risks described in this report. 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.
Our sales are dependent on sales to 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. (including its affiliate, SAM'S Club) and sales to Target Corporation accounted for approximately 19 percent and 9
percent, respectively, of our net sales in fiscal 2008. While only one customer accounted for ten percent or more of net
sales in fiscal 2008, our top 5 customers accounted for approximately 44 percent of fiscal 2008 net sales. We expect
customer concentrations will continue to account for a significant portion of our sales. Although we have long-standing
relationships with our major customers, we generally do not have written agreements that 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.
With the growing trend towards retail trade consolidation, we are increasingly dependent upon key customers
whose bargaining strength is growing. We may be negatively affected by changes in the policies of our customers, such as
on-hand inventory reductions, limitations on access to shelf space, use of private label brands, price demands and other
conditions, which could negatively impact our financial condition and results of operations.
A significant deterioration in the financial condition of our major customers could have a material adverse effect
on our sales and profitability. We regularly monitor and evaluate the credit status of our customers and attempt to adjust
sales terms as appropriate. Despite these efforts, a bankruptcy filing by a key customer could have a material adverse
effect on our business, financial condition and results of operations. For further information regarding potential liquidity
issues with a significant customer, see “Current and Future Capital Needs”, under Item 7.”Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and Note (19) to the consolidated financial statements.
Large sophisticated customers may take actions that adversely affect our gross profit and results of operations.
In recent years, we have observed a consumer trend away from traditional grocery and drug store channels and
toward mass merchandisers, which include super centers and club stores. This trend has resulted in the increased size and
influence of these mass merchandisers. As these mass merchandisers grow larger and become more sophisticated, they
may demand lower pricing, special packaging, or impose other requirements on product suppliers. These business
demands may relate to inventory practices, logistics, or other aspects of the customer-supplier relationship. If we do not
effectively respond to the demands of these mass merchandisers, they could decrease their purchases from us. A
reduction in the demand of our products by these mass merchandisers and the costs of complying with customer business
demands could have a material adverse effect on our business, financial condition and operating results.
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, principally in
China. This exposes us to risks associated with doing business globally, including: changing international political
relations; labor availability and cost; 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. The political, legal and cultural environment in the Far East is rapidly evolving, and any
14
VERSION 7.0
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.
We have relationships with over 200 third-party manufacturers. During fiscal 2008, the top two manufacturers
fulfilled approximately 25 percent of our product requirements. Over the same period, our top five suppliers fulfilled
approximately 43 percent of our product requirements.
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. We may also find
that customers are canceling orders or returning products. Any of these results could have a material adverse effect on our
business, financial condition and results of operations.
Historically, labor in China has been readily available at relatively low cost as compared to labor costs in North
America. China has experienced rapid social, political and economic change in recent years. There is no assurance that
labor will continue to be available in China at costs consistent with historical levels or that changes in labor or other laws
will not be enacted which would have a material adverse effect on product costs in China. Labor shortages in China could
result in supply delays and disruptions and drive a substantial increase in labor costs. Similarly, evolving government
labor regulations and associated compliance standards could cause our product costs to rise or could cause manufacturing
partners we rely on to exit the business. This could have an adverse impact on product availability and quality. The
Chinese economy has experienced rapid expansion and highly fluctuating rates of inflation. Higher general inflation rates
will require manufacturers to continue to seek increased product prices. During fiscal 2008, the Chinese Renminbi
appreciated approximately 9 percent with respect to the U.S. Dollar. To the extent the Renminbi continues to appreciate
with respect to the U.S. Dollar, the Company may experience cost increases on such purchases, and this could adversely
impact profitability. The Company may not be successful at implementing customer pricing or other actions in an effort to
mitigate the related effects of the product cost increases. Although China currently enjoys “most favored nation” trading
status with the U.S., the U.S. government has in the past proposed to revoke such status and to impose higher tariffs on
products imported from China. There is no assurance that our business will not be affected by any of the aforementioned
risks, each of which could have a material adverse effect on our business, financial condition and results of operations.
High costs of raw materials and energy may result in increased cost of sales and certain operating expenses and
adversely effect our results of operations and cash flow.
Significant variations in the costs and availability of raw materials and energy may negatively affect our results of
operations. Our vendors purchase significant amounts of metals and plastics to manufacture our products. They also
purchase significant amounts of electricity to supply the energy required in their production processes. The rising cost of
fuel may also increase our transportation costs. The cost of these raw materials and energy, in the aggregate, represents a
significant portion of our cost of sales and certain operating expenses. Our results of operations have been and could in
the future be adversely affected by increases in these costs. We have had some success in implementing price increases or
passing on cost increases by moving customers to newer product models with enhancements that justify higher prices and
we intend to continue these efforts. We can make no assurances that these efforts will be successful in the future or will
materially offset the cost increases we may incur.
We hold certain auction rate securities that we may be unable to liquidate at their recorded values or at all due to credit
concerns in the U.S. capital markets. Protracted illiquidity and any deterioration in the credit ratings of the issuers,
dealers or credit insurers may require us to reclassify these holdings at some point to long-term assets and record
impairment charges.
For further information, see Notes (1) and (14) to the consolidated financial statements. At February 29, 2008, all
of our temporary investments were auction rate notes collateralized by student loans, which had a carrying value of
$63,825. Liquidity for these securities is normally dependent on an auction process that provides an opportunity to sell
the security and resets the applicable interest rate at pre-determined intervals, ranging from 7 to 35 days. An auction fails
when there is insufficient demand. However, this does not represent a default by the issuer of the security. Upon an
15
VERSION 7.0
auction failure, the interest rates reset based on a formula contained in the security, and this rate is generally higher than
the current market rate.
Recent credit concerns in the capital markets have significantly reduced our ability to liquidate our auction rate
securities. At this time, there is a very limited demand for these securities and limited acceptable alternatives to liquidate
such securities. Based on current market conditions, we believe it is likely that auctions of our holdings in these securities
will be unsuccessful in the near term, resulting in us continuing to hold securities beyond their next scheduled auction
reset dates and limiting the short-term liquidity of these investments. Management intends to reduce our holdings in these
securities as circumstances allow, but believes we have sufficient liquidity from operating cash flows and available
financial sources, including our revolving credit facility, which we believe will continue to provide sufficient capital
resources to fund our foreseeable short and long-term liquidity requirements.
While these failures in the auction process have affected our ability to access these funds in the near term, based
on the related information currently at hand, we do not believe that any of our holdings of these securities are impaired. If
the issuers and brokers are unable to successfully close future auctions, and their credit ratings deteriorate or the credit
ratings of the credit insurers deteriorate, the Company may be required to reclassify its holdings in these securities to
long-term assets and to record an impairment charge on these investments in the future, which could have a material
adverse effect on our business, financial condition and results of operations.
If our goodwill or indefinite-lived intangible assets become impaired, we may be required to record significant
impairment charges.
A substantial portion of our long-term assets consist of goodwill and other indefinite-lived intangible assets
recorded as a result of past acquisitions. Under generally accepted accounting principles, goodwill and indefinite-lived
intangible assets are not amortized but are reviewed for impairment on an annual basis or more frequently whenever
events or changes in circumstances indicate that their carrying value may not be recoverable. Future events may occur
that could adversely affect the reported value of the Company’s assets and require impairment charges. Such events may
include, but are not limited to, strategic decisions to exit a business made in response to changes in economic, political
and competitive conditions, the impact of the economic environment on our customer base, or our internal expectations
with regard to future revenue growth and the assumptions we make when performing our annual impairment reviews. As
a result of such circumstances, we may be required to record a significant charge to earnings in our financial statements
during the period in which any impairment of our goodwill or indefinite-lived intangible assets is determined. Any such
impairment charges could have a material adverse effect on our business, financial condition and operating results. For
further information, including estimated impairment charges expected in the first quarter of fiscal 2009, see “Results of
Operations” under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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 any inability 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.
16
VERSION 7.0
We are subject to risks related to our dependence on the strength of retail economies.
Our business depends on the strength of the retail economies in various parts of the world, primarily in North
America and to a lesser extent Europe, Latin America and the Far East. These retail economies are affected primarily by
factors such as consumer demand and the condition of the retail industry, which, in turn, are affected by general economic
conditions and specific events such as natural disasters, terrorist attacks and political unrest. The impact of these external
factors is difficult to predict, and one or more of the factors could adversely impact our business. In recent years, the retail
industry in the U.S. and, increasingly, elsewhere has been characterized by intense competition among retailers. Because
such competition, particularly in weak retail economies, can cause retailers to struggle or fail, we must continuously
monitor, and adapt to changes in, the profitability, creditworthiness and pricing policies of our customers. A significant
weakening of retail economies could have a material adverse effect on our business, financial condition and results of
operations.
To compete successfully, we must develop and introduce a continuing stream of innovative new products to meet
changing consumer preferences.
Our long-term success in the competitive retail environment depends on our ability to develop and commercialize
a continuing stream of innovative new products that meet changing consumer preferences and take advantage of
opportunities sooner. We face the risk that our competitors will introduce innovative new products that compete with our
products. Our core initiatives include fostering our culture of innovation and new product development, enhancing and
extending our existing product categories and developing new allied product categories. There are numerous uncertainties
inherent in successfully developing and commercializing new products on a continuing basis and new product launches
may not deliver expected growth in sales or operating income. If we are unable to develop and introduce a continuing
stream of new products, it may have an adverse effect on our business, financial condition and results of operations.
Acquisitions may be more costly or less profitable than anticipated or we may not be able to identify suitable new
acquisition opportunities, which may constrain our prospects for future growth and profitability and adversely affect
the price of our common shares.
We are constantly looking for opportunities to make complementary strategic business and/or brand acquisitions.
These acquisitions, if not favorably received by consumers, shareholders, analysts, and others in the investment
community, could have a material adverse effect on the price of our common shares. In addition, any acquisition involves
numerous risks, including:
• difficulties in the assimilation of the operations, technologies, products and personnel associated with the
acquisitions;
• difficulties in integrating distribution channels;
• diversion of management's attention from other business concerns;
• difficulties in transitioning and preserving customer, contractor, supplier and other important third party
relationships;
• difficulties realizing anticipated cost savings, synergies and other benefits related to an acquisition;
•
risks associated with subsequent operating asset write-offs, contingent liabilities, and impairment of related
acquired intangible assets;
•
risks of entering markets in which we have no or limited experience; and
• potential loss of key employees associated with the acquisitions.
17
Any difficulties encountered with acquisitions could have a material adverse effect on our business, financial condition
and operating results.
We have incurred debt to fund acquisitions and capital expenditures, which could have an adverse impact on our
business and profitability.
As a result of our debt obligations, we are operating under substantially more leverage and higher interest costs.
Our debt has added constraints on our ability to operate our business, including but not limited to:
VERSION 7.0
• our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate
purposes, or other purposes could be limited;
•
•
an increased portion of our cash flow from operations will be required to service our debt, which will reduce the
funds available to us for our operations;
a significant portion of our debt is fixed or effectively fixed through the use of interest rate swaps and these rates
may produce higher interest expense than would be available with floating rate debt, in the event of decreases 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; and
• our 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, acquisitions or consolidations;
• enter into substantial new lines of business; and
• enter into certain types of transactions with our affiliates.
We rely on our central Global Enterprise Resource Planning Systems and other peripheral information systems.
Interruptions in the operation of our computerized systems or other information technologies could have a material
adverse effect on our operations and profitability.
We conduct most of our businesses under one integrated Global Enterprise Resource Planning System, which we
implemented in September 2004. Most of our operations are dependent on this system. Any failures or disruptions in this
system could cause considerable disruptions to our business and may have a material adverse effect on our business,
financial condition and results of operations.
We remain in the process of transitioning our Mexican operations to our global information system. This
transition has experienced delays as a result of the refocus of our priorities and internal resources on the integration of the
Belson Products business, a project which was completed in fiscal 2008. As a result, the transition by our Mexican
operations to our global information system is currently not expected to be substantially complete until later in fiscal
2009.
We continuously make adjustments to improve the effectiveness of our systems. Complications resulting from
such adjustments could potentially cause considerable disruptions to our business. Application program bugs, system
18
VERSION 7.0
conflict crashes, user error, data integrity issues, customer data conflicts and related integration issues all pose significant
risks.
To support new technologies, we continue to support a growing technology infrastructure base. Increased
computing capacity, power requirements, back-up capacities, broadband network infrastructure and increased security
needs are all potential areas for disruption or failure. We rely on certain outside vendors to assist us with implementation
and enhancements and other vendors to assist us in maintaining some of our infrastructure. Should any of these vendors
fail to perform as expected, it could adversely affect our service levels and threaten our ability to conduct business.
Natural disasters or other extraordinary events may disrupt our information systems and other infrastructure, and
our data recovery processes may not be sufficient to protect against loss. Any interruption or loss of data in our
information or logistical systems could materially impact our ability to procure our products from our factories and
suppliers, transport them to our distribution centers, and store and deliver them to our customers on time and in the correct
amounts. These and other factors described above could have a material adverse effect on our business, financial
condition and results of operations.
A breach of our computer security systems, and unauthorized intrusion could subject us to fraudulent use of sensitive
information and/or damage to critical data and systems. Such activity could subject us to litigation and various other
claims and have a material adverse effect on our financial condition, results of operations and the reputation of our
business.
Information systems require constant updates to their security policies and hardware systems to reduce the risk of
unauthorized access, malicious destruction of data, or information theft. We believe we have taken steps designed to
strengthen the security of our computer systems and protocols and have instituted an ongoing program to continue to do
so. Nevertheless, there can be no assurance that we will not suffer a data compromise. We rely on commercially available
systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential
information. Improper activities by third parties, advances in computer and software capabilities and encryption
technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or
breach of our computer systems.
Any such compromises or breach could cause interruptions in our operations and might require us to spend
significant management time and money investigating the event and dealing with local and federal law enforcement. In
addition, we could become the subject of litigation and various claims from our customers, employees, suppliers, service
providers and shareholders. Regardless of the merits and ultimate outcome of these matters, litigation and proceedings of
this type are expensive to respond to and defend, and we could devote substantial resources and time to responding to and
defending them. The ultimate resolution of any such litigation, claims and investigations could cause damage to our
reputation and have a material adverse effect on our financial condition, results of operations and reputation.
Audits and related disputes with taxing authorities, tax compliance and the impact of changes in tax law could have an
adverse impact on our business.
We are involved in a tax audits and related disputes with various taxing jurisdictions. We believe that we have
complied with all applicable reporting and tax payment obligations and disagree with taxing authority positions on these
various issues. We are vigorously defending our tax positions through all available administrative and judicial avenues.
For more information about tax audits and related disputes, see Item 3. “Legal Proceedings,” and Note (8) to the
consolidated financial statements.
Although the final resolution of these disputes is uncertain and involves unsettled areas of the law, based on
currently available information, we have established reserves for our best estimate of the probable tax liability for these
matters. The resolution of the issues may result in tax liabilities that are significantly higher or lower than the reserves
established for these matters. An unfavorable resolution on any matter could have a material effect on our consolidated
results of operations or cash flows.
19
VERSION 7.0
The future impact of tax legislation, regulations or treaties, including any future legislation in the U.S. or abroad
that would effect 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 effectively operate in jurisdictions always presents a risk.
Favorable tax treatment of our non- U.S. earnings is dependent on our ability to avoid classification as a Controlled
Foreign Corporation. Changes in the composition of our shareholdings could have an impact on our classification. If
our classification were to change, it could have a material adverse effect on the largest U.S. shareholders and, in turn
on the Company’s business.
A non-U.S. corporation, such as ours, will constitute a "controlled foreign corporation" or "CFC" for U.S. federal
income tax purposes if its largest U.S. shareholders (i.e., those owning 10 percent or more of its shares) together own
more than 50 percent of the shares outstanding. If the IRS or a court determined that we were a CFC, then each of our
U.S. shareholders who own (directly, indirectly, or constructively) 10 percent or more of the total combined voting power
of all classes of our stock on the last day of our taxable year would be required to include in gross income for U.S. federal
income tax purposes its pro rata share of our "subpart F income" (and the subpart F income of any our subsidiaries
determined to be a CFC) for the period during which we (and our non-U.S. subsidiaries) were a CFC. In addition, any
gain on the sale of our shares realized by such a shareholder may be treated as ordinary income to the extent of the
shareholder's proportionate share of our and our CFC subsidiaries' undistributed earnings and profits accumulated during
the shareholder's holding period of the shares while we are a CFC.
We are involved in securities class action litigation which could have a material adverse effect on our business,
consolidated financial position, results of operations and cash flows.
An agreement in principle has been reached to settle the consolidated class action lawsuits filed on behalf of
purchasers of publicly traded securities of the Company against the Company, Gerald J. Rubin, the Company’s Chairman
of the Board, President and Chief Executive Officer, and Thomas J. Benson, the Company’s Chief Financial Officer. In
the consolidated action, the plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and
Rule 10b-5 thereunder. The class period stated in the complaint was October 12, 2004 through October 10, 2005. The
lawsuit was brought in the United States District Court for the Western District of Texas. For further information, see
Item 3. “Legal Proceedings,” and Note (10) to the consolidated financial statements.
The proposed settlement remains subject to a number of conditions, including court approval following notice to
class members. The court has scheduled a hearing for June 19, 2008, where it will consider approving the proposed
settlement. Under the proposed settlement, the lawsuit would be dismissed with prejudice in exchange for a cash payment
of $4.5 million. The Company's insurance carrier will pay the settlement amount and the Company's remaining legal and
related fees associated with defending the lawsuit, because the Company has met its self-insured retention obligation. The
Company and the two officers of the Company named in the lawsuit continue to deny any and all allegations of
wrongdoing, and, if the settlement is approved, they will receive a full release of all claims. The Company cannot make
any assurances that the proposed settlement will be concluded or approved by the court. If the proposed settlement is not
concluded or approved by the court, additional negotiations or litigation could ensue putting us at risk of a future
judgment or settlement that may have a material adverse effect on the Company's financial position, results of operations
and cash flows.
20
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
VERSION 7.0
21
VERSION 7.0
ITEM 2. PROPERTIES
PLANT AND FACILITIES
The Company owns, leases, or otherwise utilizes through third-party management service agreements, a total of
33 facilities, which include selling, procurement, administrative and distribution facilities worldwide. All facilities
operated by the Company are adequate for the purpose for which they are intended. Information regarding the location,
use, segment, ownership and approximate size of the facilities and undeveloped land as of February 29, 2008 is provided
below:
Location
Type and Use
Business Segment
Owned or
Leased
El Paso, Texas, USA
El Paso, Texas, USA
Land & Building - Corporate Headquarters
Personal Care & Housewares
Land & Building - Distribution Facility
Personal Care
Southaven, Mississippi, USA
Land & Building - Distribution Facility
Personal Care & Housewares
Brampton, Ontario, Canada
Third-Party Managed Distribution Facility
Danbury, Connecticut, USA
Bentonville, Arkansas, USA
Minneapolis, Minnesota, USA
New York, New York, USA
New York, New York, USA
Office Space
Office Space
Office Space
Office Space *
Office Space **
Chambersburg, Pennsylvania, USA
Office Space - Customer Service Facility
Lancashire, England
El Paso, Texas, USA
Third-Party Managed Distribution Facility
Land - Held for Future Expansion
Southaven, Mississippi, USA
Land - Held for Future Expansion
Halton, Ontario, Canada
Office Space
Sheffield, England
Worksop, England
Land & Building - European Headquarters
Third-Party Managed Distribution Facility
Boulgne-Billancourt, France
Office Space
Nr Amsterdam, Netherlands
Third-Party Managed Distribution Facility
Mexico City, Mexico
Mexico City, Mexico
Guadalajara, Mexico
Monterrey, Mexico
Sao Paulo, Brazil
Vitoria, Brazil
Vitoria, Brazil
Lima, Perú
Lima, Perú
Caracas, Venezuela
Caracas, Venezuela
Santiago, Chile
Tokyo, Japan
Hong Kong, China
Office Space
Third-Party Managed Distribution Facility
Third-Party Managed Distribution Facility
Third-Party Managed Distribution Facility
Office Space
Third-Party Managed Distribution Facility
Third-Party Managed Distribution Facility
Office Space
Third-Party Managed Distribution Facility
Office Space
Third-Party Managed Distribution Facility
Office Space
Office Space
Third-Party Managed Distribution Facility
Personal Care
Personal Care
Personal Care
Personal Care
Housewares
Housewares
Housewares
Housewares
None
None
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Personal Care
Housewares
Housewares
Zhu Kuan, Macau, China
Shenzhen, China
Shenzhen, China
Office Space
Office Space
Office Space
Personal Care & Housewares
Personal Care & Housewares
Personal Care & Housewares
* Facility is expected to be vacated in June 2008. The lease is now month-to-month.
** New headquarters for Housewares Segment expected to be occupied in June 2008.
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Leased
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Approximate
Square
Footage
135,000
408,000
1,200,000
50,000
16,000
5,000
1,000
9,900
25,000
3,200
35,000
12 Acres
31 Acres
3,400
10,000
85,000
2,100
85,000
3,900
64,300
23,200
15,500
1,600
5,400
5,000
900
6,500
1,100
200
130
800
3,500
11,600
5,500
14,500
Our Southaven, Mississippi distribution center operations have grown to a level where we may incur capacity
constraints during our peak shipping season, which occurs during our third fiscal quarter each year. We are currently
evaluating alternatives to address this issue, including use of third party logistics providers, if necessary, and a re-
balancing of certain distribution operations between our Southaven, Mississippi and El Paso, Texas distribution centers.
22
VERSION 7.0
ITEM 3. LEGAL PROCEEDINGS
Securities Class Action Litigation – An agreement in principle has been reached to settle the consolidated class
action lawsuits filed on behalf of purchasers of publicly traded securities of the Company against the Company, Gerald J.
Rubin, the Company’s Chairman of the Board, President and Chief Executive Officer, and Thomas J. Benson, the
Company’s Chief Financial Officer. In the consolidated action, the plaintiffs alleged violations of Sections 10(b) and
20(a) of the Securities Exchange Act, and Rule 10b-5 thereunder. The class period stated in the complaint was October
12, 2004 through October 10, 2005. The lawsuit was brought in the United States District Court for the Western District
of Texas.
The proposed settlement remains subject to a number of conditions, including court approval following notice to
class members. The court has scheduled a hearing for June 19, 2008, where it will consider approving the proposed
settlement. Under the proposed settlement, the lawsuit would be dismissed with prejudice in exchange for a cash payment
of $4.5 million. The Company's insurance carrier will pay the settlement amount and the Company's remaining legal and
related fees associated with defending the lawsuit, because the Company has met its self-insured retention obligation. The
Company and the two officers of the Company named in the lawsuit continue to deny any and all allegations of
wrongdoing, and, if the settlement is approved, they will receive a full release of all claims. The Company cannot make
any assurances that the proposed settlement will be concluded or approved by the court.
United States Income Taxes - The IRS is currently examining the U.S. consolidated federal tax return for fiscal
year 2005. On March 31, 2008, the IRS provided notice of a proposed adjustment of $7,750 to taxes for fiscal year 2005.
The Company is vigorously contesting this adjustment. To date, this is the only adjustment that has been proposed;
however, the audit has not yet been concluded. Although the ultimate outcome of the dispute with the IRS cannot be
predicted with certainty, management is of the opinion that an adequate provision for taxes for fiscal 2005 has been made
in our consolidated financial statements.
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.
23
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 2008.
VERSION 7.0
24
PART II
VERSION 7.0
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PRICE RANGE OF COMMON SHARES
Our common shares are listed on the NASDAQ Global Select Market (“NASDAQ”) [symbol: HELE]. The
following table sets forth, for the periods indicated, in dollars per share, the high and low sales prices of the common
shares as reported on the NASDAQ. These quotations reflect the inter-dealer prices, without retail mark-up, mark-down,
or commission and may not necessarily represent actual transactions.
FISCAL 2008
First quarter
Second quarter
Third quarter
Fourth quarter
FISCAL 2007
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
28.10
29.26
23.08
19.48
$
21.30
19.96
16.89
14.56
$
21.95
19.44
25.29
25.50
$
18.71
16.18
16.98
21.75
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS OF RECORD
Our common shares with a par value of $0.10 per share are our only class of equity security outstanding at
February 29, 2008. As of May 7, 2008, there were approximately 288 holders of record of the Company's common shares.
Shares held in "nominee" or "street" name at each bank nominee or brokerage house are included in the number of
shareholders of record as a single shareholder.
CASH DIVIDENDS
Our current policy is to retain earnings to provide funds for the operation and expansion of our business and for
potential acquisitions. We have not paid any cash dividends on our common shares since inception. Our current intention
is to pay no cash dividends in fiscal 2009. 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.
25
VERSION 7.0
ISSUER PURCHASES OF EQUITY SECURITIES
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 common shares over an initial period extending through
May 31, 2006. On April 25, 2006, our Board of Directors approved a resolution to extend the existing plan to May 31,
2009.
During the fiscal quarter ended August 31, 2007, a key employee tendered 728,500 common shares having a
market value of $20,271 as payment for the exercise price and related federal tax obligations arising from the exercise of
options. We accounted for this activity as a purchase and retirement of the shares at a $27.83 per share average price. For
the fiscal quarter ended November 30, 2007, we did not repurchase any common shares. During the fiscal quarter ended
February 29, 2008, we purchased and retired an additional 366,892 common shares under this resolution at a total
purchase price of $5,731, for a $15.62 per share average price. From September 1, 2003 through February 29, 2008, we
have repurchased 2,659,228 common shares at a total cost of $71,614, or an average price per share of $26.93. An
additional 340,772 common shares remain authorized for purchase under this plan as of February 29, 2008.
The following table provides information with respect to our purchases of our common shares during the fourth
quarter of fiscal 2008:
ISSUER PURCHASES OF EQUITY SECURITIES FOR THE THREE MONTHS ENDED FEBRUARY 29, 2008
Period
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
December 1 through December 31, 2007
January 1 through January 31, 2008
February 1 through February 29, 2008
Total
-
192,774
174,118
366,892
$0.00
15.37
15.90
$15.62
-
192,774
174,118
366,892
707,664
514,890
340,772
340,772
26
PERFORMANCE GRAPH
The graph below compares the cumulative total return of our Company to the NASDAQ Market Index and a peer
group index, assuming $100 invested March 1, 2003. The Peer Group Index is the Dow Jones–U.S. Personal Products,
Broad Market Cap, Yearly, Total Return Index. The comparisons in this table are required by the SEC and are not
intended to forecast or be indicative of the possible future performance of our common shares.
VERSION 7.0
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
FOR HELEN OF TROY LIMITED, NASDAQ MARKET INDEX,
AND PEER GROUP INDEX
$250
$200
$150
$100
$50
$0
2003
2004
2005
2006
2007
2008
HELEN OF TROY LIMITED
PEER GROUP INDEX
NASDAQ MARKET INDEX
HELEN OF TROY LIMITED
PEER GROUP INDEX
NASDAQ MARKET INDEX
Fiscal year ended the last day of February
2003
100.00
100.00
100.00
2004
222.78
125.86
152.32
2005
215.81
145.85
153.88
2006
151.24
146.54
171.76
2007
178.59
181.60
180.94
2008
122.93
193.79
171.53
The Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to
the liabilities of Section 18 under the Securities Exchange Act. In addition, it shall not be deemed incorporated by
reference by any statement that incorporates this annual report on Form 10-K by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act, except to the extent that we specifically incorporate this
information by reference.
27
VERSION 7.0
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated income statement data for the years ended on the last day of February 2008, 2007 and
2006, and the selected consolidated balance sheet data as of the last day of February 2008 and 2007, have been derived
from our audited consolidated financial statements included in this report. The selected consolidated income statement
data for the years ended on the last day of February 2005 and 2004, and the selected consolidated balance sheet data as of
the last day of February 2006, 2005 and 2004, have been derived from our audited consolidated financial statements
which are not included in this report. Information for the years ended on the last day of February 2005 and 2004 contains
certain reclassifications necessary to restate prior years’ operations of Tactica as a discontinued segment. This
information should be read together with the discussion in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated financial statements and notes to those statements included in
this report. All currency amounts are denominated in U.S. Dollars.
Years Ended The Last Day of February,
(in thousands, except per share data)
Statements of Income Data
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating income before impairment and gain
Impairment charges
Gain on sale of land
Operating income
Interest expense
Other income (expense)
Earnings before income taxes
Income tax expense (benefit) (4)
Income from continuing operations
Loss from discontinued segment's operations, net
of tax effects
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
2008 (3)
2007
2006
2005 (1)(2)
2004 (1)
$
652,548
370,853
$
634,932
355,552
$
589,747
323,189
$
581,549
307,045
$
474,868
257,651
281,695
207,771
73,924
4,983
(3,609)
72,550
(15,025)
3,748
61,273
(236)
61,509
279,380
208,964
70,416
-
-
70,416
(17,912)
2,643
55,147
5,060
50,087
266,558
195,180
71,378
-
-
71,378
(16,866)
1,290
55,802
6,492
49,310
274,504
172,480
102,024
-
-
102,024
(9,870)
(2,575)
89,579
12,907
76,672
217,217
131,443
85,774
-
-
85,774
(4,047)
4,312
86,039
14,477
71,562
-
-
-
(222)
(11,040)
$
61,509
$
50,087
$
49,310
$
76,450
$
60,522
2.01
$
$
-
$
2.01
1.93
$
$
-
$
1.93
1.66
$
$
-
$
1.66
1.58
$
$
-
$
1.58
1.65
$
$
-
$
1.65
1.56
$
$
-
$
1.56
$
$
$
2.58
(0.01)
2.57
$
$
$
2.52
(0.39)
2.13
$
$
$
2.36
(0.01)
2.35
$
$
$
2.29
(0.35)
1.94
30,531
31,798
30,122
31,717
29,919
31,605
29,710
32,589
28,356
31,261
28
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
VERSION 7.0
Last Day of February,
(in thousands)
Balance Sheet Data:
Working capital
Total assets
Long-term debt
Shareholders' equity (5)
Cash dividends
2008 (3)
2007
2006
2005 (1)(2)
2004 (1)
$
276,304
911,993
212,000
568,376
-
$
238,131
906,272
240,000
527,417
-
$
185,568
857,744
254,974
475,377
-
$
156,312
811,449
260,000
420,527
-
$
166,445
489,609
45,000
350,103
-
(1) Fiscal year 2005 and 2004 results presented include 100 percent of the results of Tactica under the line item, "Loss
from discontinued segment’s operations, net of tax effects.” 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 presented to eliminate the impact of Tactica's current assets and current
liabilities. Also, in the fourth quarter of fiscal 2004, we recorded a loss of $5,699 from the impairment of Tactica
goodwill, net of $1,938 of related tax benefits. Our consolidated financial statements for fiscal 2005 (for the period of
time we owned Tactica) and 2004, as restated include 100 percent of Tactica's net 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) Fiscal year 2005 and thereafter includes the results of operations of OXO International, which we acquired on June 1,
2004 for a net cash purchase price of $273,173 including the assumption of certain liabilities. At acquisition, we
recorded $11,668 of working capital, $2,907 of property and equipment, and $258,578 of goodwill, trademarks and
other intangible assets. The acquisition was funded by a $73,173 Revolving Line of Credit advance and a $200,000
Term Loan Credit Agreement. The $200,000 Term Loan Credit Agreement and a portion of the Revolving Line of
Credit advance were subsequently repaid with the proceeds of $225,000 Floating Rate Senior Notes issued on June
29, 2004.
(3) Fiscal year 2008 includes the results of operations of Belson Products, which we acquired on May 1, 2007 for a net
cash purchase price of $36,500 including the assumption of certain liabilities. The acquisition was funded with cash.
At acquisition, we recorded $13,980 of working capital, $139 of fixed assets, and $22,381 of goodwill, trademarks
and other intangible assets.
(4) During fiscal 2008, we settled certain tax disputes with the Inland Revenue Department (the “IRD”), and the IRS. As
a result of these settlements, we recorded tax benefits totaling $9,313 as a current year provision. These benefits
represent the reversal of tax provisions previously established for the periods under dispute. See Note (8) to the
consolidated financial statement for more information on our income taxes.
(5) In fiscal 2008, we repurchased 1,095,392 common shares at a cost of $26,002. No common shares were repurchased
during the fiscal years ended 2007 and 2006. In fiscal 2005, we repurchased 757,710 common shares at a cost of
$25,039. In fiscal 2004, we repurchased 806,126 common shares at a cost of $20,572. All shares repurchased were
concurrently cancelled.
29
VERSION 7.0
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should
be read in conjunction with the other sections of this report, including Part I, “Item 1. Business”; Part II, “Item 6.
Selected Financial Data”; and Part II, “Item 8. Financial Statements and Supplementary Data.” The various sections of
this MD&A contain a number of forward-looking statements, all of which are based on our current expectations. Actual
results may differ materially due to a number of factors, including those discussed on Page 2 of this report in the section
entitled “Information Regarding Forward-Looking Statements,” Item 1A. “Risk Factors,” and in Item 7A. “Quantitative
and Qualitative Disclosures About Market Risk." In this MD&A, unless otherwise indicated, or the context suggests
otherwise, amounts expressed are in thousands of U.S. Dollars.
OVERVIEW
Fiscal 2008 was a very challenging year due to deteriorating domestic economic conditions beginning in our
second fiscal quarter and accelerating throughout the year. Generally, through the first half of the fiscal year, our overall
business performance was in line with our expectations. In the second quarter of fiscal 2008, we identified the following
emerging unfavorable domestic economic trends whose effects had an increasingly pervasive impact on consumer
spending throughout the balance of the year:
• Rising gasoline, energy and food costs;
• A significant slowdown in the U.S. housing market;
• Tightening credit markets and the related resulting impact emerging from the recent sub-prime mortgage
crisis, causing many financial institutions to record large asset impairments, which restricted liquidity in the
general capital markets; and
• A general decline in consumer confidence.
These trends have combined to create a difficult domestic retail environment, and many of our retail partners have
faced slowing same store sales trends. We cannot predict at this time when conditions will start to change. While our
Housewares segment continued to grow and expand its sales base, our Personal Care segment, whose domestic product
categories are in more entrenched market positions, experienced sales declines. Overall fiscal 2008 net sales increased
$17,616 or 2.8 percent when compared to fiscal 2007.
Also during the year, global economic conditions continued to put upward pressure on our product costs. These
conditions included:
• Rising energy costs, transportation costs and the costs of the basic materials used to manufacture our
products, namely: plastic resins, copper, stainless steel, and other metals;
• Declining labor availability and evolving government labor regulations and associated compliance standards
are causing increases in labor costs in China, where we currently source a significant portion of our products;
and
• The continued appreciation of the Chinese Renminbi with respect to the U.S. Dollar, which will likely
increase future product costs.
With the combined higher sales base from our Housewares and Personal Care Segments, we were able to offset
rising product costs with some selling, general and administrative expense efficiency gains which enabled us to finish
fiscal 2008 with a $2,134 increase in our operating income, when compared to fiscal 2007.
30
Net earnings in fiscal 2008 increased $11,422 or 22.8 percent when compared to fiscal 2007. A significant
amount of this increase was attributed to specified non-operating income items, including: the one-time effects of various
tax settlements, lower interest rates paid on reduced long-term debt levels, higher interest income earned on higher
average levels of cash equivalents and temporary investments, and a gain on the sale of land. These items were partially
offset by impairment charges of $4,883.
Significant Developments and Events. Other significant developments and events that occurred during fiscal
year 2008 are described below.
VERSION 7.0
• Acquisition of Belson Products: On May 1, 2007, we acquired Belson, formerly the professional salon division
of Applica Consumer Products, Inc. for a cash purchase price of $36,500 plus the assumption of liabilities. This
transaction was accounted for as a purchase of a business and was paid for using available cash on hand. Belson
is a supplier of personal care products to the professional salon industry. Belson markets its professional products
to major beauty suppliers and other major distributors under brand names including Belson®, Belson Pro®, Gold
‘N Hot®, Curlmaster®, Premiere®, Profiles®, Comare®, Mega Hot®, and Shear Technology®. Products
include electrical hair care appliances, spa products and accessories, professional brushes and combs, and
professional styling shears. Belson products are principally distributed throughout the United States, as well as
Canada and the United Kingdom.
During fiscal 2008, we completed the integration of the Belson operations into our business structure and system,
and staffed our new Belson team. A key element of our long term profitability strategy will depend on the extent
to which we can continue to leverage our Far East supplier network and relationships to establish new, lower
sourcing cost alternatives for Belson’s products. Regarding our Belson product lines, we expect to see margins
improve over the next fiscal year as we continue to work out of inventories on hand at the time of the Belson
acquisition and replace these with new Belson products sourced through our existing Far East supplier network.
We expect that recent economic conditions, including increased labor and production costs in the Far East and
elsewhere will make our profitability strategy more difficult to achieve. We believe that Belson’s portfolio of
professional salon products, in addition to our existing professional products, will continue to strengthen our
leadership position in the professional distribution channels. Belson’s net sales for fiscal 2008 were in line with
our expectations upon acquisition.
• Domestic Distribution: During fiscal 2007, we placed a great deal of attention on our domestic distribution
infrastructure completing the consolidation of many of our U.S. distribution, receiving and storage functions into
a facility located in Southaven, Mississippi. In fiscal 2008, this facility shipped approximately 69 percent of our
consolidated net sales volume. Throughout fiscal 2008, we continued to gain operational knowledge in the new
facility, which contributed to lower overall distribution costs as a percentage of net sales. Distribution costs as a
percentage of net sales were 4.8 percent in fiscal 2008, compared to 5.6 and 5.3 percent in fiscal years 2007 and
2006, respectively. Key drivers of the fiscal 2008 cost savings were improved domestic warehouse labor and
materials efficiency, lower costs associated with customer chargebacks and lower overall facilities costs due to the
elimination of rent on a prior distribution facility.
Our Mississippi distribution center operations have grown to a level where we may incur capacity constraints
during our peak shipping season, which occurs during our third fiscal quarter each year. We are currently
evaluating alternatives to address this issue, including use of third party logistics providers, if necessary, and a re-
balancing of certain distribution operations between our Southaven, Mississippi and El Paso, Texas distribution
centers. As a result, we expect distribution costs improvements to moderate in fiscal 2009.
•
International Sales Growth: In Europe and outside the Western Hemisphere, our business continued its growth
from fiscal 2006. Overall net sales were up 25.7 and 18.7 percent in fiscal 2008 and 2007, respectively. A
significant part of this increase was fueled by the addition of Toni&Guy® personal care appliances to our product
offerings, growth in net sales of the Vidal Sasson® branded appliances, and the expansion of our Housewares
segment’s OXO® kitchen gadget sales in the region.
31
VERSION 7.0
Our Latin American business also continued to grow in fiscal 2008. In the region, we had revenue growth of 16.4
and 27.4 percent in fiscal 2008 and 2007, respectively. Our best performing brands and product categories in the
region are the Brut® fragrances, Ammens® foot and body powders, Revlon® appliances and Vidal Sassoon®
appliances. We continue to believe certain countries in Latin America present attractive opportunities for
continued expansion because of strong economic growth, the growing stability of their democratic governments,
and recent high levels of foreign investment in the region. We intend to continue to transition our Mexican
operations to our global information system during the remainder of fiscal 2009.
• Supply Chain and Other Operational Improvements: We manage a complex supply chain and operating
platform that during fiscal 2008 shipped approximately 140 million units to over 16,000 wholesale, retail, and
individual customers. Our Company and industry are facing challenges, including slowing U.S. and international
economies, rising energy costs and domestic and international marketplace pricing pressures. Continued
consolidation and growth in the largest retailers has created a very competitive environment that requires careful
target pricing, superb customer service, operational excellence in order to maintain deliveries, and continuous
product and process innovation. In this environment, we believe that a key way we will grow is by increasing our
operational efficiency. The implementation of our Global Enterprise Resource Planning System, now in
operation for approximately 4 ½ years has required us to closely examine and re-think how we do business. In
fiscal years 2008, 2007 and 2006, direct corporate information systems costs included in our consolidated
statements of income in the “Selling, general and administrative expenses” line were $8,642, $8,248 and $8,080.
These amounts do not include the cost of personnel, telecommunications, software and computer equipment
charges incurred and paid directly by our various local operations outside of El Paso, Texas. We continue to
invest resources to extend the functionality and performance of the system. We believe that timely and effective
change and evolution in our systems will increase the total value proposition we offer to our customers and
consumers, and thus increase our competitive advantage.
Throughout fiscal 2008, we completed several initiatives to incrementally streamline our supply chain and
simplify workflows in order to reduce costs, improve responsiveness and transactional accuracy, and reduce lead-
times for nearly all of these key processes. In our Personal Care segment, we implemented limited sourcing of
liquid grooming and skin care products out of China beginning in the second fiscal quarter of 2008. We are also
currently evaluating additional geographic sourcing alternatives for these products. In our Housewares segment,
we began the transition of the majority of our U.S. based sourcing to our existing supply chain operations in the
Far East, with the goal of completing the transition in the first half of fiscal 2009.
Over the upcoming year, given the global economic trends and developments in China we have previously
discussed, we expect that one of our biggest challenges will be to balance increases in product costs against the
need and ability to raise our selling prices, while continuing to ensure a steady flow of product from source to
customer.
• Linens ‘n Things Bankruptcy: On May 2, 2008, Linens Holding Co., the operator of Linens ‘n Things retail
chain (“Linens”) filed for protection under chapter 11 of the U.S. Bankruptcy Code. As of February 29, 2008, we
had $4,590 of accounts receivable outstanding from Linens. We received our last payment on account from
Linens on April 11, 2008, leaving us with accounts receivable due from Linens of $4,112. The $4,112 balance
consisted of $3,072 for sales originating on or before February 29, 2008 and $1,040 for sales originating after
February 29, 2008. All orders processed for Linens since April 11, 2008 have been on a cash-in-advance basis.
The Linens accounts receivable are unsecured, and the amount that the Company will ultimately recover, if any, is
not presently determinable. Although the Company maintains an allowance for doubtful accounts to cover a
customer’s inability to pay all or a portion of their accounts receivable, no additional specific reserve was
established as of February 29, 2008 for Linens. Our allowance for doubtful accounts at February 29, 2008 may
not prove to be sufficient to cover any losses arising as a result of the Linens bankruptcy and future incremental
bad debts charges would negatively affect our results of operations particularly in our Housewares segment. In
addition, Linens is a significant customer of the Company with fiscal 2008 net sales of approximately $1,300 and
$17,300, for our Personal Care and Housewares segments, respectively. It is possible that future levels of revenue
from this customer may be significantly reduced or eliminated, depending on the ultimate resolution of Linens
liquidity issues, and its ability to successfully emerge from bankruptcy protection.
32
• First Quarter 2009 Impairment: The Company historically has completed its analysis of the carrying value of
our goodwill and other intangible assets and our analysis of the remaining useful economic lives of our intangible
assets other than goodwill during the first quarter of each fiscal year. Our analyses are not yet complete, however,
based upon preliminary work done to date, we expect to recognize impairment charges during the first quarter of
fiscal 2009 on certain identified indefinite-lived intangible assets held by our Personal Care segment. We
currently estimate that the charge will range between $7,000 and $10,000, and will be recorded as a component of
operating income in the Company’s income statement for the fiscal quarter ended May 31, 2008. These charges
will reflect the amounts by which the carrying values of these assets exceed their estimated fair values determined
by their estimated future discounted cash flows.
VERSION 7.0
Financial Highlights for Fiscal 2008
• Consolidated net sales increased 2.8 percent, or $17,616, to $652,548 in fiscal 2008 compared to $634,932 in
fiscal 2007. Personal Care segment consolidated net sales decreased 1.9 percent in fiscal 2008 when compared to
fiscal 2007. Housewares segment net sales increased 19.7 percent in fiscal 2008 when compared to fiscal 2007.
Our net sales growth includes the benefit of a net positive foreign exchange impact of $5,610.
• Consolidated gross profit margin as a percentage of net sales decreased 0.8 percentage points to 43.2 percent in
fiscal 2008 compared to 44.0 percent in fiscal 2007.
• Selling, general and administrative expense (“SG&A”) as a percentage of net sales decreased 1.1 percentage
points to 31.8 percent in fiscal 2008 compared to 32.9 percent in fiscal 2007.
• During the third fiscal quarter of 2008, we recorded pretax impairment charges totaling $4,983 ($4,883 after tax)
representing the carrying value of our Epil-Stop® and TimeBlock® brands.
• On September 9, 2007, we sold 16.5 acres of raw land adjacent to our El Paso, Texas office and distribution
center. The land was sold for $5,998, less selling costs of $390 and we recorded a pretax gain on the sale of
$3,609.
•
Interest expense was $15,025 in fiscal 2008 compared to $17,912 in fiscal 2007. Lower interest expense was due
to the repayment of $35,000 of long-term debt during the year and the impact of lower overall interest rates on our
outstanding debt.
• Other income, net was $3,748 in fiscal 2008 compared to $2,643 in fiscal 2007. The increase in other income was
principally due to the additional interest income we earned on accumulating levels of temporarily invested cash
and higher interest rates earned on our mix of temporary investments.
• Our income tax benefit was $236 in fiscal 2008, or -0.4 percent of earnings before income taxes, compared to
$5,060 of income tax expense in fiscal 2007, or 9.2 percent of earnings before income taxes. Fiscal 2008 income
tax expense includes the benefits of $9,313 due to various tax settlements with the Hong Kong Inland Revenue
Department and the IRS.
• Our net earnings increased to $61,509 in fiscal 2008 from $50,087 in fiscal 2007, or 22.8 percent, however a
significant amount of the increase was attributed to specified non-operating income items, including: the one-time
effects of various tax settlements, lower interest rates paid on reduced long-term debt levels, higher interest earned
on cash equivalents and temporary investments, and a gain on the sale of land. These items were partially offset
by impairment charges of $4,883.
• Our diluted earnings per share increased to $1.93 in fiscal 2008 from $1.58 in fiscal 2007, or by 22.2 percent.
• Our total assets grew by $5,721, our inventory levels remained relatively flat and our total debt decreased by
$35,000. At the end of fiscal 2008, we had $121,676 of cash and temporary investments compared to $91,205 of
cash and temporary investments at the end of fiscal 2007.
33
Key Revenue and Net Earnings Growth Drivers for Fiscal 2009: We have outlined the following specific
objectives for fiscal year 2009 that we believe should help us increase sales and net earnings:
VERSION 7.0
• Continued growth and expansion of the OXO® product lines and market distribution;
•
Improved gross margins for Belson products as the sourcing is shifted to lower cost providers;
• Continued focus on selling, general and administrative expense reduction where possible;
• Price increases to retailers in categories with increased cost of goods where possible;
• Expanded sales and distribution of our Bed Head® by TIGI product line of appliances and related products;
and
• Re-evaluate our Personal Care segment’s domestic product line mix, and its selling, branding and production
forecasting operations.
34
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.
VERSION 7.0
Fiscal Year Ended (in thousands)
2007
2006
2008
% of Net Sales (1)
2007
2006
2008
Net sales
Personal Care Segment
Housewares Segment
Total net sales
Cost of sales
Gross profit
Selling, general, and administrative expense
Operating income before impairment and gain
Impairment charges
Gain on sale of land
Operating income
Other income (expense):
Interest expense
Other income (expense), net
Total other income (expense)
Earnings before income taxes
Income tax expense (benefit)
Net earnings
* Calculation is not meaningful
$
488,414
164,134
652,548
$
497,824
137,108
634,932
$
461,947
127,800
589,747
74.8%
25.2%
78.3%
78.4%
21.7%
21.6%
100.0% 100.0% 100.0%
370,853
281,695
207,771
73,924
4,983
(3,609)
72,550
355,552
279,380
208,964
70,416
-
-
70,416
323,189
266,558
195,180
71,378
-
-
71,378
(15,025)
3,748
(11,277)
(17,912)
2,643
(15,269)
(16,866)
1,290
(15,576)
61,273
55,147
55,802
(236)
5,060
6,492
$
61,509
$
50,087
$
49,310
56.8%
43.2%
31.8%
11.3%
0.8%
-0.6%
11.1%
-2.3%
0.6%
-1.7%
9.4%
0.0%
9.4%
56.0%
44.0%
32.9%
11.1%
0.0%
0.0%
11.1%
-2.8%
0.4%
-2.4%
8.7%
0.8%
7.9%
54.8%
45.2%
33.1%
12.1%
0.0%
0.0%
12.1%
-2.9%
0.2%
-2.6%
9.5%
1.1%
8.4%
% Change
08/07
07/06
-1.9%
19.7%
2.8%
4.3%
0.8%
-0.6%
5.0%
*
*
3.0%
-16.1%
41.8%
-26.1%
7.8%
7.3%
7.7%
10.0%
4.8%
7.1%
-1.3%
0.0%
0.0%
-1.3%
6.2%
*
-2.0%
11.1%
-1.2%
-104.7% -22.1%
22.8%
1.6%
(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 are computed as a percentage of total net sales.
The following table sets forth, for the periods indicated, the impact that acquisitions had on our net sales.
IMPACT OF ACQUISITION ON NET SALES
(in thousands)
2008
Fiscal Years Ended
2007
2006
Prior year's net sales
$
634,932
$
589,747
$
581,549
Components of net sales change
Core business net sales change
Net sales from acquisitions (non-core business net sales)
Change in net sales
Net sales
Total net sales growth
Core business net sales change
Net sales change from acquisitions (non-core business net sales change)
(9,061)
26,677
17,616
652,548
$
45,147
38
45,185
634,932
$
(21,277)
29,475
8,198
589,747
$
2.8%
-1.4%
4.2%
7.7%
7.7%
0.0%
1.4%
-3.7%
5.1%
In the table above, the percentages shown are the changes of each component as a percentage of the prior year’s
total net sales. Core business net sales change represents the change in net sales for business that we operated over the
same fiscal periods in the prior year. Net sales from acquisitions are net sales arising from business acquired with no
comparable sales in the prior fiscal period. In fiscal 2008, net sales from acquisitions consisted of $26,562 of sales from
35
our fiscal 2008 Belson Products acquisition (10 months), and $115 from our Candela® lighting products (7 months). In
fiscal 2007, lighting products provided $38 of commission revenue from Candela® lighting products.
VERSION 7.0
Net Sales:
Consolidated net sales increased 2.8 percent or $17,616 in fiscal 2008 over fiscal 2007. New product acquisitions
accounted for 4.2 percentage points, or $26,677 of the sales percentage growth over fiscal 2007. Net sales from new
product acquistions included $26,562 of sales from our Belson Products acquisition (10 months), and $115 from our
Candela® lighting products (7 months). Core business growth (growth without acquisitions) showed an overall decline in
fiscal 2008 of $9,061 or 1.4 percent. Our Housewares segment provided 4.3 percentage points of consolidated net sales
growth, or an increase of $27,026. Housewares consolidated net sales increased 19.7 percent in fiscal 2008 when
compared to fiscal 2007. This growth was partially offset by a negative 1.5 percentage point impact on net sales volumes
from declines in our Personal Care segment, or $9,410. Overall, shifts in selling mix between segments and product
categories resulted in higher average unit selling prices, which was offset by overall unit volume declines in our Personal
Care segment.
Consolidated net sales increased 7.7 percent or $45,185 in fiscal 2007 over fiscal 2006. There was only a nominal
amount of net sales from new product acquisitions for the year. Core business growth (growth without acquisitions)
accounted for almost all sales growth. Our Personal Care segment provided 6.1 percentage points of consolidated net
sales growth, or an increase of $35,877. Personal Care net sales increased 7.8 percent in fiscal 2007 when compared to
fiscal 2006. Our Housewares segment provided 1.6 percentage points of consolidated net sales growth, or an increase of
$9,308. Housewares consolidated net sales increased 7.3 percent in fiscal 2007 when compared to fiscal 2006. Overall,
higher average unit selling prices contributed 5.3 percent to sales growth while increases in unit volumes contributed 2.4
percent to sales growth. Higher unit selling prices resulted from product mix changes and more aggressive management
of sales discounts and allowances.
Segment Net Sales:
Personal Care
Our Personal Care segment currently offers products in three categories: appliances; grooming, skin care, and hair
products; and brushes, combs and accessories. Our Personal Care segment is dedicated to being the preferred supplier of
personal care and wellness products recognized for value added consumer driven innovation and unsurpassed customer
support.
Net sales in our Personal Care segment decreased 1.9 percent, or $9,410, to $488,414 in fiscal 2008 compared to
$497,824 in fiscal 2007. Domestically, we operate in mature markets where we compete on product innovation, price,
quality and customer service. We continuously adjust our product mix, pricing and marketing programs to try to maintain,
and in some cases, acquire more retail shelf space. Over the last year, the prices of raw materials such as copper, steel,
plastics and alcohol have moderated somewhat. However due to recent economic conditions, especially the impact that
petroleum prices have across the economic spectrum, we believe costs of these materials will begin to experience upward
price pressure again. Accordingly, we are continually evaluating the need to raise prices with our customers and have
already put certain increases into effect. In some cases, we have been successful raising prices to our customers, or
passing on cost increases by moving customers to newer product models with enhancements that justify a higher price.
Sales price increases and product enhancements can have long lead times before their impact can be realized. The extent
to which we will be able to continue with price increases, the timing, and the ultimate impact of such increases on net
sales is uncertain. Accordingly, we expect to continue to experience margin pressure in this segment.
• Appliances. Products in this group include hair dryers, straighteners, curling irons, hairsetters, women’s shavers,
mirrors, hot air brushes, home hair clippers and trimmers, paraffin baths, massage cushions, footbaths and body
massagers. Net sales for fiscal 2008 increased 0.2 percent, or $689, compared to fiscal 2007. Removing the
impact of the Belson acquistion which occurred in the first quarter of this fiscal year, net sales in the appliances
product category were down 6.9 percent, when compared to fiscal 2007.
36
Higher unit volumes contributed 1.8 percent to sales growth, while decreases in average unit selling prices offset
this growth by 1.6 percent. The decrease in average unit selling prices was due to a combination of slightly
higher levels of domestic sales incentives, and changes in sales prices and sales mix, including the sales of our
Belson appliance lines. Belson appliances currently sell at lower price points overall than our existing
professional appliances. In addition, a higher percentage of Belson’s sales are on a direct import basis. Direct
import sales have lower unit sales prices and lower gross margins, which are expected due to lower selling and
distribution costs associated with this type of sale.
Factors that we believe contributed to the declines in sales for this product category include:
VERSION 7.0
o A difficult domestic retail environment, where many of our retail partners have faced slowing same store
sales trends resulting from such economic factors as high gasoline prices, anticipation of higher home
heating prices, tightening credit markets, the recent sub-prime mortgage crisis, the overall slowdown in
the U.S. housing market and a general decline in consumer confidence;
o A number of our key retail partners reduced their inventory levels, resulting in lower sales orders for the
year;
o During fiscal 2008, we reduced new product offerings in our clippers, trimmers and wellness appliances
categories, which have historically been less profitable businesses with higher post-season product returns
as compared to other product categories. As a result, we experienced lower holiday season business in
these two categories. We are in the process of re-evaluating our product mix in these categories; and
o
In our retail divison, expanded product line offerings by certain competitors and replacement of branded
merchandise with private label merchandise by certain retailers have impacted our net sales, when
compared to the same period last year. In our professional division, key customers began adding private
label merchandise in our categories which is presenting a challenge to branded sales growth.
During fiscal 2008, we introduced the Bed Head® and Fusion Tools™ brands of professional grade appliances,
which are sold at higher price points than our more traditional retail appliances. We believe the addition of these
brands contributed some incremental sales gains, but also replaced certain sales of our existing appliance brands.
Revlon®, Vidal Sassoon®, Hot Tools®, Bed Head®, Dr. Scholl's®, Gold ‘N Hot®, Wigo®, Toni&Guy®,
Sunbeam®, Fusion Tools™ and Health o Meter® were key selling brands in this product line.
• Grooming, Skin Care, and Hair Products. Net sales for fiscal 2008 decreased 4.0 percent, or $3,456, over fiscal
2007. Unit volume declines contributed 1.4 percent and unit price declines contributed 2.6 percent to the decrease
in net sales.
In this category, our Latin American region experienced low double digit net sales increases for the current fiscal
year, that were more than offset by net sales declines in our North American region. In the Latin American
region, net sales growth is being driven primarily by the performance of our Brut® and Ammens® brands.
Within these core brands, our strategy of developing product line extensions continues to help to generate sales
growth, however, we expect the pace of these sales gains to moderate going forward as we are now operating on a
larger sales base.
In North America, we had net sales declines primarily as a combined result of:
o The discontinuance of the Sea Breeze® Naturals line with certain key customers and the associated sales
returns and allowances granted to retailers as a result;
o Fiscal 2007 benefited from initial shipments of Brut Revolution®. During fiscal 2008, Brut Revolution®
was a re-order business with shipments at approximately 25 percent of the prior year’s initial distribution;
37
VERSION 7.0
o Failure of our Epil-Stop® product launch; and
o Continued loss of domestic market share due to competitive advertising and promotion scale issues. The
level of adverting and promotional expenditures required to introduce new products and grow brand
awareness in the domestic market sometimes constrains our ability to profitably introduce new products.
In the fourth quarter of fiscal 2007, we commenced our re-introduction of the newly formulated Epil-Stop®
product line. During the second and third quarters of fiscal 2008, our Epil-Stop® brand of hair depilatory
products lost placement in certain mass discount and drug channels due to low consumer response. We
experienced a high rate of customer sales returns for the product line, which contributed to our weak North
American sales performance. In response to these circumstances, in the third quarter of fiscal 2008, we
conducted a strategic review of the Epil-Stop® trademark. We also evaluated the future potential of our
TimeBlock® brand in light of our recent experience with Epil-Stop®. From these reviews, we concluded that the
future undiscounted cash flows associated with these trademarks were insufficient to recover their carrying
values. We also believe that any significant additional investments in these brands will not generate potential
returns in line with the Company’s investment expectations. Accordingly, we recorded pretax impairment
charges totaling $4,983 ($4,883 after tax) representing the carrying value of these trademarks. We currently
expect to continue to hold these trademarks for use.
Our grooming, skin care, and hair care portfolio includes the following brands: Brut®, Brut Revolution®, Brut
XT®, Sea Breeze®, SkinMilk®, Vitalis®, Ammens®, Condition 3-in-1®, Final Net®, Vitapointe®, TimeBlock®
and Epil-Stop®.
• Brushes, Combs, and Accessories. Net sales for fiscal 2008 decreased 17.8 percent, or $6,643, compared to fiscal
2007. A combination of sluggish product sales in the mass retail channel, the discontinuance of a private label
program with a large drug retailer, the loss of product placement with a key distributor, and a general loss of shelf
space were significant contributing factors to the decline. Average unit selling prices were relatively flat year
over year with the loss in sales being driven primarily by unit volume declines. Bed Head® by TIGI products in
this product line began to ship during the fiscal quarter ended May 31, 2007. We believe Bed Head® sales, while
not yet significant within this product group, will provide opportunities for growth. Vidal Sassoon®, Revlon®,
Karina® and Belson Comare® were the key selling brands in this category.
Net sales in our Personal Care segment increased 7.8 percent, or $35,877, to $497,824 in fiscal 2007 compared to
$461,947 in fiscal 2006. In our appliance category, net sales for fiscal 2007 increased 7.5 percent, or $26,119, compared
to fiscal 2006. Higher average unit selling prices contributed 4.4 percent to sales growth while increases in unit volumes
contributed 3.1 percent to sales growth. In our grooming, skin care and hair products category, net sales for fiscal 2007
increased 3.0 percent, or $2,548, over fiscal 2006. Unit volumes contributed 3.3 percent to sales growth offset by a 0.3
percent average unit selling price decline. Unit selling price declines were due to the loss of higher price point unit
volume in the U.S., offset by lower price point unit volume gains in Latin America. In our brushes, combs and
accessories product category, net sales for fiscal 2007 increased 23.9 percent, or $7,210, compared to fiscal 2006. Higher
average unit selling prices contributed 15.7 percent to sales growth while increases in unit volumes contributed 8.2
percent to sales growth.
38
VERSION 7.0
Housewares
Our Housewares segment reports the operations of OXO International (“OXO”) whose products include kitchen
tools, cutlery, bar and wine accessories, household cleaning tools, food storage containers, tea kettles, trash cans, storage
and organization products, gardening tools, kitchen mitts and trivets, barbeque tools, and rechargeable lighting products.
Net sales in our Housewares segment increased 19.7 percent, or $27,026, to $164,134 in fiscal 2008 compared to
$137,108 in fiscal 2007. Higher average unit selling prices contributed 5.5 percent to sales growth and increased unit
sales volume contributed 14.2 percent to sales growth. Unit prices are increasing due to the impact of price increases
effective late in the second quarter of fiscal 2008 and the continued expansion of our product mix to include higher priced
goods across a broad range of subcategories. Unit volumes increased primarily due to improved distribution execution,
growth with existing accounts, continued expansion of net sales in the United Kingdom and Japan, and new product
introductions. Examples of new products were our new Good Grips® POP modular line of food storage containers,
silicone utensils, sinkware, shower caddies and travel mugs. Overall, in fiscal 2008, significant new product introductions
accounted for approximately $16,000 in incremental sales growth in the Housewares segment. In fiscal 2008, food
preparation products accounted for approximately 77 percent of the segment’s net sales, household cleaning tools
accounted for approximately 11 percent of the segment’s net sales, and storage, organization, garden tools and all other
categories accounted for approximately 12 percent of the segment’s net sales.
While the Housewares segment continued its trend of double digit sales growth in fiscal 2008, future sales growth
in this segment of our business will be dependent on new product innovation, continued product line expansion, new
sources of distribution, and geographic expansion. Domestically, our Housewares segment’s market opportunities are
maturing and its current customer base amongst all tiers of retailers is extensive. In addition, retail consumer spending
behavior in this segment is closely correlated to the overall health of the economy, including housing and credit markets.
Accordingly, we are cautious about our ability to maintain the same pace of sales growth during fiscal 2009.
Net sales in our Housewares segment increased 7.3 percent, or $9,308, to $137,108 in fiscal 2007 compared to
$127,800 in fiscal 2006. Higher average unit selling prices contributed 8.9 percent to sales growth, offset by a 1.6 percent
impact of unit volume decreases. Unit selling prices increased due to the Houseware segment’s expansion of its product
mix into higher price point goods such as trash cans, tea kettles, and hand tools. This was partially offset by first quarter
fiscal 2007 declines in unit volumes due to issues associated with our transition to our new distribution center. In fiscal
2007, food preparation products accounted for approximately 80 percent of the segment’s net sales, household cleaning
tools accounted for approximately 12 percent of the segment’s net sales, and storage, organization, garden tools and all
other categories accounted for approximately 8 percent of the segment’s net sales.
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 the year-over-year percentage change in each region.
Fiscal Year Ended (in thousands)
2007
2006
2008
% of Net Sales (1)
2007
2006
2008
Net sales by geographic region
United States
Canada
Europe and other
Latin America
Total net sales
$
505,817
27,960
71,734
47,037
652,548
$
$
511,786
25,687
57,044
40,415
634,932
$
$
487,620
22,331
48,070
31,726
589,747
$
77.5%
4.3%
11.0%
7.2%
82.7%
3.8%
8.2%
5.4%
100.0% 100.0% 100.0%
80.6%
4.0%
9.0%
6.4%
% Change
08/07
07/06
-1.2%
8.8%
25.8%
16.4%
2.8%
5.0%
15.0%
18.7%
27.4%
7.7%
(1) Net sales percentages by geographic region are computed as a percentage of the geographic region’s net sales to total
net sales.
39
VERSION 7.0
In fiscal 2008, the U.S. accounted for a 0.9 percentage point decline in our consolidated net sales, or $5,967,
while international operations contributed an overall 3.7 percentage point increase in of our consolidated net sales, or
$23,583. Latin American operations accounted for 1.0 percentage point of our consolidated net sales growth, or $6,622.
Canadian operations accounted for 0.4 percentage point of our consolidated net sales growth, or $2,273. Europe and other
country operations accounted for 2.3 percentage points of our consolidated net sales growth, or $14,688. Net sales in the
United Kingdom accounted for $6,361 of the European and other consolidated net sales gains. Europe and other country
growth was driven by increases in our OXO business and increases in sales of Vidal Sasson® and Toni & Guy®
appliances throughout the region. Our net sales growth included the benefit of a net positive foreign exchange impact of
$5,610 in fiscal 2008. In fiscal 2008, Canada, Europe and other, and Latin American regions accounted for approximately
19, 49 and 32 percent of international net sales, respectively.
In fiscal 2007, the U.S. accounted for 4.1 percentage points of our consolidated net sales growth, or $24,166,
while international operations contributed 3.6 percentage points of our consolidated net sales growth, or $21,019. Latin
American operations accounted for 1.5 percentage points of our consolidated net sales growth, or $8,689. Canadian
operations accounted for 0.6 percentage points of our consolidated net sales growth, or $3,356. Europe and other country
operations accounted for 1.5 percentage points of our consolidated net sales growth, or $8,974. Net sales in the United
Kingdom accounted for $5,182 of the European and other consolidated net sales gains. Expanded placements with key
retailers, new grocer and wholesale distribution, and improved retail market conditions contributed to the gain. Growth in
remaining European and other foreign markets in which we operate contributed $3,792 of consolidated net sales growth.
Our net sales growth included the benefit of a net positive foreign exchange impact of $2,738 in fiscal 2007. In fiscal
2007 Canada, Europe and other, and Latin American regions accounted for approximately 21, 46 and 33 percent of
international net sales, respectively.
On March 6, 2008, a fire at a third-party managed distribution facility in Vitoria, Brazil destroyed personal care
products inventory with a recorded value of $1,014. As a result, we expect to incur Personal Care segment sales
disruptions in the Brazilian market through the balance of the first quarter of fiscal 2009, but believe we can replace the
inventories and restore our ability to appropriately service sales in the second quarter of fiscal 2009. We expect the
impact on our quarterly and annual results in fiscal 2009 due to lost revenue and associated costs will be immaterial to our
consolidated operating results. We have filed claims with our casualty insurance carriers on this inventory. We currently
expect the settlement to be in excess of the carrying value of our inventory at the date of the fire, because our policy calls
for settlement at the retail sales value of the inventory lost, therefore no loss contingency has been provided for
subsequent to, February 29, 2008.
Gross Profit Margins:
Gross profit, as a percentage of net sales, decreased to 43.2 percent in fiscal 2008 from 44.0 percent in fiscal
2007. The primary components of the decline were as follows:
• Gross margins for our Personal Care appliances improved year-over-year due to a combination of price increases,
new product introductions at higher price points and the decline of lower margin grooming and wellness sales.
Appliance gross margin gains were partially offset by the impact of Belson professional product sales, which
currently sell at lower margins than our core professional lines. We expect to see margins improve in our Belson
product lines over the next fiscal year as we continue to work out of inventories on hand at the time of the Belson
acquisition and replace these with new Belson products sourced through our existing Far East supplier network.
Any potential gains may be partially offset by the impact that global economic conditions may have on product
costs, as previously discussed.
• Gross margins for our grooming, skin care and hair products and brushes, combs and accessories categories were
generally lower when compared to fiscal 2007 due to the impact of higher raw materials costs combined with
concessions in response to pricing pressures, including increased customer incentives.
• Gross margins for the Housewares segment were lower due primarily to product mix shifts to higher price point,
lower margin items and the higher cost of goods due to higher sourcing costs.
40
VERSION 7.0
Another trend which continued to impact our overall product margins across all product categories in fiscal 2008
was the increase in the amount of direct import programs we manage for our customers. Under a direct import program,
we design and arrange for the shipment of product specifically for a particular customer. The product is shipped with the
customer as the importer of record and title to the goods transfers upon departure from our manufacturers. The customer
is responsible for all inbound transportation and importation costs which results in us charging a reduced selling price on
the related goods. Out of the 0.8 percent overall decline in gross profit, the increase in direct import business accounted
for approximately 0.3 percent of the decline.
As in fiscal 2007, margins continued to benefit from favorable currency exchange rates. The British Pound, Euro,
Canadian Dollar, Mexican Peso and Brazilian Real were all a source of exchange rate gains. We purchase almost all of
our products in U.S. Dollars.
In fiscal 2007, gross profit, as a percentage of net sales, decreased to 44.0 percent from 45.2 percent in fiscal
2006. The 1.2 percent decrease in gross profit was primarily due to:
• Price concessions, allowances and accommodations granted to customers for late shipments in our Housewares
segment during the first quarter of fiscal 2007;
• The Housewares segment’s expansion into higher unit price, lower margin product lines;
• Margin pressure in both segments, primarily due to raw materials and energy price increases;
• Promotional pricing and close-out selling throughout fiscal 2007, primarily in the Personal Care segment, in order
to reduce domestic inventory levels; and
• An increase in the amount of direct import programs we manage for our customers.
In fiscal 2007, margins benefited from favorable currency exchange rates. The British Pound, Euro, Canadian
Dollar and Brazilian Real were all a source of exchange rate gains. The Mexican Peso partially offset these gains as it
continued to weaken against the U.S. Dollar throughout the year. In fiscal 2007, we purchased almost all of our products
in U.S. Dollars.
Selling, general, and administrative expense (“SG&A” ):
SG&A decreased to 31.8 percent of net sales in fiscal 2008 from 32.9 percent in fiscal 2007. The improvement
over fiscal 2007 was largely due to our improved distribution cost structure and related lower costs associated with
customer chargebacks, outbound freight cost improvements, and lower information technology outsourcing costs, partially
offset by higher advertising and personnel expenses. We continue to improve our operations and processes, which we
believe will ultimately drive down costs. We believe that our competitive position and the long term health of our
business depends on fulfillment and transportation excellence. As our operations with our retailers, especially large
retailers, become increasingly intertwined, the breadth and complexity of services we must render in order to earn more
shelf space and, thus, increase market share, escalate. Consequently, it has become increasingly more expensive to do
business with our customers and we expect this trend to continue. Our Mississippi distribution center operations have
grown to a level where we may incur capacity constraints during our peak shipping season, which occurs during our third
fiscal quarter each year. Due to these and other factors, we expect distribution costs improvements to moderate in fiscal
2009.
SG&A decreased slightly to 32.9 percent of net sales in fiscal 2007 from 33.1 percent in fiscal 2006. Expenses as
a percentage of sales remained relatively flat year over year, but remain relatively high compared to prior historical
results. In fiscal 2007, the impact of depreciation and higher facility related costs from the operational transition of our
domestic distribution system, increased personnel costs, and compliance charges paid to vendors for claims associated
with our Housewares segment’s order processing and shipping issues which occurred early in fiscal 2007 all contributed
to keeping cost levels high.
41
VERSION 7.0
Impairment charges
In the fourth quarter of fiscal 2007, we re-introduced the newly formulated Epil-Stop® product line. During the
second and third quarters of fiscal 2008, our Epil-Stop® brand of hair depilatory products lost placement in certain mass
discount and drug channels due to low consumer response. We experienced a high rate of customer sales returns for the
product line, which was also a contributing factor to our weak North American sales performance. In response to these
circumstances, in the third quarter of fiscal 2008, we conducted a strategic review of the Epil-Stop® trademark. We also
evaluated the future potential of our TimeBlock® brand in light of our recent experience with Epil-Stop®. From these
reviews, we concluded that the future undiscounted cash flows associated with these trademarks were insufficient to
recover their carrying values. We also believe that any significant additional investments in these brands will not generate
potential returns in line with the Company’s investment expectations. Accordingly, we recorded pretax impairment
charges totaling $4,983 ($4,883 after tax) representing the carrying value of these trademarks. We currently expect to
continue to hold these trademarks for use.
The Company historically has completed its analysis of the carrying value of our goodwill and other intangible
assets and our analysis of the remaining useful economic lives of our intangible assets other than goodwill during the first
quarter of each fiscal year. Our analyses are not yet complete, however, based upon preliminary work done to date, we
expect to recognize impairment charges during the first quarter of fiscal 2009 on certain identified indefinite-lived
intangible assets held by our Personal Care segment. We currently estimate that the charge will range between $7,000 and
$10,000, and will be recorded as a component of operating income in the Company’s income statement for the fiscal
quarter ended May 31, 2008. These charges will reflect the amounts by which the carrying values of these assets exceed
their estimated fair values determined by their estimated future discounted cash flows.
Gain on sale of land
On September 9, 2007, we sold 16.5 acres of raw land adjacent to our El Paso, Texas office and distribution
center. The land was sold for $5,998, less selling costs of $390 and resulted in a pretax gain on the sale of $3,609.
Operating Income by Segment:
Operating income by operating segment for fiscal 2008, 2007 and 2006 was as follows:
Fiscal Year Ended (in thousands)
2007
2006
2008
% of Net Sales (1)
2007
2006
2008
% Change
08/07
07/06
Operating income by segment
Personal Care
Housewares
Total operating income
$
$
41,149
31,401
72,550
$
$
42,530
27,886
70,416
$
$
37,260
34,118
71,378
8.4%
19.1%
11.1%
8.5%
20.3%
11.1%
8.1%
26.7%
12.1%
-3.2%
14.1%
12.6% -18.3%
-1.3%
3.0%
(1) Operating income percentages by segment 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 and any
selling, general, and administrative expenses (“SG&A”) associated with the segment. The SG&A used to compute each
segment’s operating profit are comprised of SG&A directly associated with the segment, plus overhead expenses that are
allocable to the operating segment. In connection with the acquisition of our Housewares segment, the seller agreed to
perform certain operating functions for the segment for a transitional period of time that ended in February 2006. The
costs of these functions for the fiscal year ended February 28, 2006 of $11,241 were reflected in SG&A for the
Housewares segment’s operating income. During the transitional period, we did not make an allocation of our corporate
overhead to the Housewares segment.
During the first quarter of fiscal 2007, we completed the transition of our Housewares segment’s operations to our
internal operating systems and our new distribution facility in Southaven, Mississippi. For the fiscal year ended February
28, 2007, we allocated expenses totaling $12,753 to the Housewares segment, some of which were previously absorbed by
the Personal Care segment.
42
VERSION 7.0
In the fourth quarter of fiscal 2007, we completed the consolidation of our domestic appliance inventories into the
Southaven facility. Throughout fiscal 2007, we conducted an evaluation of our shared cost allocation methodology given
the structural and process changes that were taking place in our operations, and changed our methodology in the first
quarter of fiscal 2008. We believe the new method better reflects the economics of our newly consolidated operations.
The table below summarizes and compares the expense allocations made to the Housewares segment over the last
three fiscal years:
Housewares Segment Expense Allocation
(dollars in thousands)
Distribution and sourcing expense
Other operating and corporate overhead expense
Total allocated expenses
Expense allocation as a percentage of net sales:
Distribution and sourcing expense
Other operating and corporate overhead expense
Total allocated expenses
Personal Care
(New Method)
2008
(Prior Methods)
2007
2006
$
$
$
14,031
6,901
20,932
7,541
5,212
12,753
10,382
859
11,241
$
$
$
8.5%
4.2%
12.8%
5.5%
3.8%
9.3%
8.1%
0.7%
8.8%
The Personal Care segment’s operating income decreased $1,381, or 3.2 percent, for fiscal 2008 compared to
fiscal 2007, and increased $5,270, or 14.1 percent, for fiscal 2007 compared to fiscal 2006.
The operating income decrease in fiscal 2008 when compared to fiscal 2007, was primarily due to sales declines,
an overall increase in cost of sales, and $4,983 of impairment charges, which were partially offset by better SG&A cost
absorption and a one time gain on the sale of land of $3,609.
The operating income increase in fiscal 2007 when compared to fiscal 2006, was primarily due to better SG&A
cost absorption which was partially offset by increased cost of sales.
The Personal Care segment’s operating income as a percentage of the segment’s net sales was 8.4, 8.5 and 8.1
percent for fiscal 2008, 2007 and 2006, respectively.
Housewares
The Housewares segment’s operating income increased $3,515, or 12.6 percent, for fiscal 2008 compared to fiscal
2007, and decreased $6,232, or 18.3 percent, for fiscal 2007 compared to fiscal 2006.
The operating income increase in fiscal 2008 when compared to fiscal 2007, was primarily due to sales increases,
partially offset by higher cost of goods and rising distribution costs due to the increased complexity of product handling
being required by the segment’s customers.
The operating income decrease in fiscal 2007 when compared to fiscal 2006, was due to a number of factors
recapped below:
•
•
lower sales in the first fiscal quarter, due to our transition to a new distribution center;
the segment’s expansion into higher unit price, lower margin product lines;
• material price increases;
43
•
•
•
the impacts of depreciation and higher facility related costs;
compliance charges paid to vendors for claims associated with our Housewares segment’s order processing and
shipping issues occurring earlier during the fiscal year; and
added corporate overhead and distribution center expense allocations that were previously absorbed by the
Personal Care segment.
The Housewares segment’s operating income as a percentage of the segment’s net sales was 19.1, 20.3 and 26.7
VERSION 7.0
percent for fiscal 2008, 2007 and 2006, respectively.
Interest expense and Other income (expense):
Interest expense decreased to $15,025 in fiscal 2008 compared to $17,912 in fiscal 2007. The overall decrease
was due to the retirement of $35,000 of long-term debt during the year and the impact of lower overall interest rates on
our outstanding debt.
Interest expense increased to $17,912 in fiscal 2007 compared to $16,866 in fiscal 2006. The overall increase is
principally due to higher interest rates on floating rate debt. At the end of the third quarter of fiscal 2007, we entered into
interest rate swap agreements to effectively fix interest rates on most of our floating rate debt.
Other income (expense) was $3,748, $2,643, and $1,290 in fiscal 2008, 2007 and 2006, respectively. The
following schedule shows key components of other income (expense):
Fiscal Year Ended (in thousands)
2007
2006
2008
% of Net Sales (1)
2007
2006
2008
% Change
08/07
07/06
Other income (expense):
Interest income
Realized and unrealized gain (losses) on securities
Litigation settlement gain, net
Miscellaneous other income (expense), net
Total other income (expense)
* Calculation is not meaningful
$
$
$
3,573
(189)
104
260
3,748
1,965
2
450
226
2,643
$
$
$
889
(135)
400
136
1,290
0.5%
0.0%
0.0%
0.0%
0.6%
0.3%
0.0%
0.1%
0.0%
0.4%
0.2%
0.0%
0.1%
0.0%
0.2%
*
81.8% 121.0%
-101.5%
-76.9% 12.5%
15.0% 66.2%
41.8% 104.9%
(1) Sales percentages are computed as a percentage of total net sales.
The trend of increasing interest income over the periods shown is due to increasing levels of temporarily invested
cash and higher interest rates earned on our mix of temporary investments. Fiscal year 2006 interest income included the
receipt of $463 of interest income on an income tax refund.
The principal items comprising miscellaneous other income (expense), net for fiscal 2006 include a gain on the
sale of a distribution center of $1,304 offset by a loss on a bankruptcy settlement of $1,550.
44
Income tax expense:
Our fiscal 2008, 2007 and 2006 income tax expense was -0.4, 9.2 and 11.6 percent, respectively, of net earnings
before income taxes. In any given year, there are significant transactions or events that are incidental to our core
businesses and that by a combination of their nature and jurisdiction, can have a disproportionate impact on our reported
effective tax rates. Without these transactions, the trend in our effective tax rates would follow a more normalized
pattern. The following table shows the comparative impact of these items on our pretax earnings, tax expense and
effective tax rates, for each of the years covered by this report:
VERSION 7.0
IMPACT OF SIGNIFICANT ITEMS ON EFFECTIVE TAX RATES
(dollars in thousands)
2008
Tax
Effective
Earnings Expense Tax Rate
Pretax
Years Ended Last Day of February
2007
Tax
Expense
Effective
Tax Rate
Pretax
Earnings
Pretax
Earnings
2006
Tax
Expense
Effective
Tax Rate
Pretax earnings and tax expense (benefit), as reported
$
61,273
$
(236)
-0.4%
$55,147
$5,060
9.2%
$55,802
$6,492
11.6%
Tax benefit from HK IRD Settlement, including interest
income and reversal of penalties
Tax benefit from IRS settlement, including interest and
penalties
Net operating loss valuation allowance
Impairment loss
Loss on bankruptcy settlement
-
-
-
4,983
-
7,950
1,363
(977)
100
-
*
*
*
2.0%
0.0%
-
-
-
-
-
192
*
-
-
-
-
0.0%
0.0%
0.0%
0.0%
-
-
-
-
1,550
Gain on sale of land (2008 and 2007) and facilities (2006)
(3,609)
(1,364)
37.8%
Gain on litigation settlements
(104)
(2)
2.0%
(422)
(450)
(143)
34.0%
(1,304)
(9)
2.0%
(400)
-
-
-
-
527
(443)
(8)
Tax impact of repatriation of prior year's foreign earnings
Pretax earnings and tax expense, without significant items
-
$62,543
-
$6,834
0.0%
10.9%
$54,275
$5,100
9.4%
-
$55,648
(2,792)
$3,776
0.0%
0.0%
0.0%
0.0%
34.0%
34.0%
2.0%
*
6.8%
* Calculation is not meaningful
Excluding the impact of significant items, there is a trend of more of our income being taxed in higher tax rate
jurisdictions, including the U.S.
The table above reports non-GAAP pretax earnings and tax expense, which excludes specified significant items.
Non-GAAP pretax earnings, as discussed in the preceding table may be considered non-GAAP financial information as
contemplated by SEC Regulation G, Rule 100. The preceding table reconciles these measures to their corresponding
GAAP based measures presented under our consolidated condensed statements of income. The Company believes that its
non-GAAP pretax earnings and tax expense provides useful information to management and investors regarding financial
and business trends relating to its financial condition and results of operations. The Company believes that this non-
GAAP pretax earnings and tax expense, in combination with the Company's financial results calculated in accordance
with GAAP, provides investors with additional perspective. The Company further believes that the excluded significant
items do not accurately reflect the underlying performance of its continuing operations for the period in which they are
incurred, even though some of these excluded items may be incurred and reflected in the Company's GAAP financial
results in the foreseeable future. The material limitation associated with the use of the non-GAAP financial measures is
that the non-GAAP measures do not reflect the full economic impact of the Company's activities. The Company's non-
GAAP pretax earnings is not prepared in accordance with GAAP, is not an alternative to GAAP financial information,
and may be calculated differently than non-GAAP financial information disclosed by other companies. Accordingly,
undue reliance should not be placed on non-GAAP information.
45
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Selected measures of our liquidity and capital resources for fiscal years ended 2008 and 2007 are shown below:
VERSION 7.0
Accounts Receivable Turnover (Days) (1)
Inventory Turnover (Times) (1)
Working Capital (in thousands)
Current Ratio
Ending Debt to Ending Equity Ratio (2)
Return on Average Equity (1)
Fiscal Year Ended
2008
2007
69.3
2.4
$276,304
3.3 : 1
37.8%
11.4%
71.6
2.2
$238,131
2.8 : 1
47.4%
10.0%
(1) Accounts receivable turnover, inventory turnover, and return on average equity computations use 12 month trailing
sales, cost of sales or net earnings 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) 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.” For
further information regarding this financing, see Notes (5) and (7) to our consolidated financial statements and our
discussion below under “Financing Activities.”
Operating Activities:
From a balance sheet management perspective, we continue to improve our financial position as we did in the
prior year. Our total assets grew by $5,721, our inventories remained relatively flat, and our total debt decreased by
$35,000. At the end of fiscal 2008 we had $121,676 of cash and temporary investments versus $91,205 of cash and
temporary investments at the end of fiscal 2007.
In fiscal 2008, our accounts receivable decreased $10,281 to $105,615 and our accounts receivable turnover
decreased to 69.3 days from 71.6 days in fiscal 2007. This calculation is based on a rolling five quarter accounts
receivable balance. In fiscal 2008, we continued to incrementally improve accounts receivable turnover as we continued
to gain operating experience with systems put into place in the later half of fiscal 2005.
In fiscal 2008, we continued to focus on inventory management, holding our inventories relatively flat when
compared with the prior year, while operating on a higher overall sales base. As a result, over the fiscal year, inventory
turnover increased to 2.4 from 2.2 in fiscal 2007.
Working capital increased to $276,304 at the end of fiscal 2008 compared to $238,131 at the end of fiscal 2007.
The increase was principally due to the combined effects of increased cash and temporary investments, the reduction in
our receivables levels and a net decrease in our overall current liability levels. As a result of our working capital asset
management, our current ratio increased to 3.3:1 in fiscal 2008 from 2.8:1 in fiscal 2007.
46
Investing Activities:
In fiscal 2008, investing activities used $47,320 of cash compared with $62,479 and $35,264 used in fiscal 2007
and fiscal 2006, respectively.
VERSION 7.0
Significant highlights of our fiscal 2008 investing activities:
• We spent $1,744 on molds and tooling, $1,076 on information technology infrastructure, $1,660 on
distribution center equipment, $1,534 on land for future distribution center expansion in Southaven,
Mississippi, and $1,169 for recurring additions and/or replacements of fixed assets in the normal and ordinary
course of business.
• We spent $526 on patent cost registration.
• We spent $36,500 in cash to acquire accounts receivable, inventory, trademarks, goodwill and intangible
assets of the Belson business.
• We received net proceeds from the sale of land of $5,608 and a property insurance settlement of $94.
• We purchased $178,275 and sold $170,200 of temporary investments, leaving $63,825 on hand at year end.
• We repaid $738 of premium loans on certain life insurance policies owned by the Company.
Significant highlights of our fiscal 2007 investing activities:
• We spent $1,631 on molds and tooling, $1,338 on information technology infrastructure, $1,660 on
distribution center equipment, $1,077 on acquisition, furnishing and remodeling of office space and other
facilities in Latin America, and $923 for recurring additions and/or replacements of fixed assets in the normal
and ordinary course of business.
• We spent $474 for lighting product trademarks and certain patents acquired from Vessel, Inc , and $292 on
patent cost registrations for our other businesses.
• We purchased $147,725 and sold $91,975 of temporary investments, leaving $55,750 on hand at year end.
• We received net proceeds from the sale of land of $666.
Significant highlights of our fiscal 2006 investing activities:
• We spent a total of $45,862 on the construction of a 1,200,000 square foot distribution center in Southaven,
Mississippi. The total costs of the project, included land, building, material handling equipment and fixtures.
The project commenced in May 2005 and was completed in November 2005. The project was funded out of a
combination of cash from operations, our revolving line of credit, draws against $15,000 of Industrial
Revenue Bonds, and the proceeds from the sale of our existing distribution center in Southaven, Mississippi,
as discussed below.
• We spent $1,497 on molds and tooling, $2,292 on information technology infrastructure, $689 on distribution
equipment and material handling systems at our existing operational facilities, and $1,589 for recurring
additions and/or replacements of fixed assets in the normal and ordinary course of business.
• We spent $438 on patent cost registrations.
• On February 2, 2006, we sold a 619,000 square foot distribution center in Southaven, Mississippi for $16,850
recording a gain on the sale of $1,304.
• We purchased and sold $15,400 of temporary investments, leaving none on hand at year end.
47
Financing Activities:
During fiscal 2008, financing activities used $40,190 of cash compared to $10,792 and $2,923 used in fiscal 2007
and fiscal 2006, respectively.
VERSION 7.0
Significant highlights of our fiscal 2008 financing activities:
•
•
In June 2007, we prepaid $25,000 of our 5 year floating rate senior notes without penalty.
In January 2008, we paid a $10,000 principal installment on our fixed rate senior debt.
• Employees exercised 156,675 options for common shares, providing $2,340 of cash and $416 in related tax
benefits. Employees also purchased 27,014 of common shares through our employee stock purchase plan
providing $435 of cash.
• An additional 1,000,000 options were exercised during the fiscal quarter ended August 31, 2007 in a non-cash
transaction in which a key employee tendered 728,500 common shares having a market value of $20,271 as
payment of the exercise price and related federal tax obligations for the exercise of options. The exercise of
these options required $4,505 to pay related federal income tax obligations and generated approximately
$1,663 of related tax benefits.
• We purchased and retired a total of 366,892 common shares on the open market at a total purchase price of
$5,731.
Significant highlights of our fiscal 2007 financing activities:
• We drew $7,660 against our $15,000 industrial revenue bond established to acquire equipment, machinery
and related assets for our new Southaven, Mississippi distribution center. In May 2006, we converted the
$12,634 total drawn during fiscal 2006 and fiscal 2007 into a five-year Industrial Development Revenue
Bond. We repaid $4,974 of this debt in September 2006 and we repaid $7,660 in January 2007, which was
the balance of the debt. Also, in January 2007, we paid a $10,000 principal installment on our fixed rate
senior debt.
• Employees exercised 247,686 options for common shares, providing $3,067 of cash and $544 in related tax
benefits. Employees also purchased 22,348 of common shares through our employee stock purchase plan
providing $375 of cash. No common shares were repurchased during the fiscal year.
Significant highlights of our fiscal 2006 financing activities:
•
In August 2005, we entered into a Loan Agreement with the Mississippi Business Finance Corporation (the
“MBFC”) in connection with the issuance by the MBFC of up to $15,000 Mississippi Business Finance
Corporation Taxable Industrial Development Revenue Bonds, Series 2005 (Helen of Troy LP Southaven, MS
Project) (the “Bonds”). The proceeds of the Bonds were used for the acquisition and installation of
equipment, machinery and related assets located in our new Southaven, Mississippi distribution center then
under construction. Interim draws, accumulating up to the $15,000 limit could be made through May 31,
2006, with interest paid quarterly. The outstanding principal converted to five-year Bonds with principal paid
in equal annual installments beginning May 31, 2007, and interest paid quarterly. In September 2005, we
made an initial draw of $4,974 under the Bonds. At that time, pursuant to the Loan Agreement, we elected a
12-month LIBOR rate plus a margin of 1.125 percent.
•
In January 2006, we paid a $10,000 principal installment on our fixed rate senior debt.
• Employees exercised 161,675 options for common shares, providing $1,798 of cash and $402 in related tax
benefits. Employees also purchased 22,171 of common shares through our employee stock purchase plan
providing $396 of cash. No common shares were repurchased during the fiscal year.
48
VERSION 7.0
During the second quarter of fiscal 2008, we permanently reduced the commitment under our revolving credit
agreement (“Revolving Line of Credit Agreement”), dated as of June 1, 2004, between Helen of Troy L.P., as borrower,
and Bank of America, N.A. and other lenders, from $75 million to $50 million. Our ability to access our Revolving Line
of Credit is subject to our compliance with the terms and conditions of the credit facility and long-term debt agreements,
including financial covenants. The financial covenants require us to maintain certain debt/EBITDA ratios, fixed charge
coverage ratios, consolidated net worth levels, and other financial requirements. Certain covenants as of February 29,
2008, limit our total outstanding indebtedness from all sources to no more than 3.5 times the latest twelve months trailing
EBITDA. These covenants effectively limited our ability to incur more than $123,991 of additional debt from all sources,
including draws under our Revolving Line of Credit Agreement. Additionally, our debt agreements restrict us from
incurring liens on any of our properties, except under certain conditions. In the event we were to default on any of our
other debt, it would constitute a default under our credit facilities as well. As of February 29, 2008, we are in compliance
with the terms of the various debt agreements.
Contractual Obligations:
Our contractual obligations and commercial commitments, as of the end of fiscal 2008 were:
PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF FEBRUARY
(in thousands)
Total
2009
1 year
2010
2 years
2011
3 years
2012
4 years
2013
5 years
After
5 years
Term debt - fixed rate
Term debt - floating rate (1)
Long-term incentive plan payouts
Interest on floating rate debt (1)
Interest on fixed rate debt
Open purchase orders
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
Other
Total contractual obligations (2)
$
$
$
$
$
$
15,000
200,000
4,233
44,255
2,579
87,672
50,575
61,795
11,554
2,578
111
480,352
3,000
-
2,044
11,870
950
87,672
3,669
7,910
1,745
2,578
111
121,549
3,000
75,000
1,349
8,925
733
-
6,718
6,814
1,418
-
-
103,957
3,000
-
840
7,453
516
-
6,032
6,288
1,186
-
-
25,315
3,000
50,000
-
5,489
299
-
5,514
6,451
957
-
-
71,710
3,000
-
-
4,508
81
-
4,859
6,484
904
-
-
19,836
$
-
75,000
-
6,010
-
-
23,783
27,848
5,344
-
-
137,985
$
$
$
$
$
$
$
(1) The future obligation for interest on our variable rate debt has historically been estimated assuming the rates in effect
as of the end of the latest fiscal quarter on which we are reporting. As mentioned above in Note (7) to these
consolidated financial statements, on September 28, 2006, the Company entered into interest rate hedge agreements in
conjunction with its unsecured floating interest rate $100 million, 5 year; $50 million, 7 year; and $75 million, 10 year
senior notes (the “swaps”). The swaps are a hedge of the variable LIBOR rates used to reset the floating rates on the
senior notes. The swaps effectively fix the interest rates on the 5, 7 and 10 year senior notes at 5.89, 5.89 and 6.01
percent, respectively, beginning September 29, 2006. Accordingly, the future interest obligations related to this debt
have been estimated using these rates.
(2) In addition to the contractual obligations and commercial commitments in the table above, as of February 29, 2008,
we have recorded $8,320 of net income tax liabilities, including provision for our uncertain tax positions. While we
expect to settle certain of these issues over the near term, we are unable to reliably estimate the timing of future
payments related to uncertain tax positions; therefore, we have excluded all tax liabilities from the table above.
Off-Balance Sheet Arrangements:
We have no existing activities involving special purpose entities or off-balance sheet financing.
49
VERSION 7.0
Current and Future Capital Needs:
At February 29, 2008, we held approximately $63,825 of our temporary investments in auction rate notes
collateralized by student loans. At this time, there is very limited demand for these securities and limited acceptable
alternatives to liquidate such securities. As a result, we may not be able to liquidate these auction rate notes at their
recorded values or at all. If we are unable to sell the notes on a timely basis as cash needs arise, we would be required to
rely on cash on hand, cash from operations and available amounts under our Revolving Line of Credit Agreement in order
to meet those needs. For more information, see "Item 1A., Risk Factors."
On May 2, 2008, Linens Holding Co., the operator of Linens ‘n Things retail chain (“Linens”) filed for protection
under chapter 11 of the U.S. Bankruptcy Code. As of February 29, 2008, we had $4,590 of accounts receivable
outstanding from Linens. We received our last payment on account from Linens on April 11, 2008, leaving us with
accounts receivable due from Linens of $4,112. The $4,112 balance consisted of $3,072 for sales originating on or before
February 29, 2008 and $1,040 for sales originating after February 29, 2008. All orders processed for Linens since April
11, 2008 have been on a cash-in-advance basis. The Linens accounts receivable are unsecured, and the amount that the
Company will ultimately recover, if any, is not presently determinable. Although the Company maintains an allowance for
doubtful accounts to cover a customer’s inability to pay all or a portion of their accounts receivable, no additional specific
reserve was established as of February 29, 2008 for Linens. Our allowance for doubtful accounts at February 29, 2008
may not prove to be sufficient to cover any losses arising as a result of the Linens bankruptcy and future incremental bad
debts charges would negatively affect our results of operations particularly in our Housewares segment. In addition,
Linens is a significant customer of the Company with fiscal 2008 net sales of approximately $1,300 and $17,300, for our
Personal Care and Housewares segments, respectively. It is possible that future levels of revenue from this customer may
be significantly reduced or eliminated, depending on the ultimate resolution of Linens liquidity issues, and its ability to
successfully emerge from bankruptcy protection.
Based on our current financial condition, current operations and considering the potential impact of the issues
discussed in the two paragraphs above, we believe that cash flows from operations and available financing sources will
continue to provide sufficient capital resources to fund our 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 June 2009, our five-year $50 million Revolving Line of Credit
facility, and $75 million of five-year, unsecured floating rate senior debt will mature. While management has not
determined or committed to a specific course of action to repay the $75 million unsecured floating rate senior debt due
June 29, 2009, we currently expect that we will have sufficient borrowing capacity in place when combined with available
cash and investment balances, to repay the debt principal on or before maturity. 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 finance acquisition activity with available cash, the issuance of common shares,
additional debt or other sources of financing, depending upon the size and nature of any such transaction and the status of
the capital markets at the time of such acquisition.
50
VERSION 7.0
CRITICAL ACCOUNTING POLICIES
The SEC 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.
Income Taxes - Effective March 1, 2007, we adopted FIN 48, which provides guidance for the recognition,
derecognition and measurement in financial statements of tax positions taken in previously filed tax returns or tax
positions expected to be taken in tax returns. See Note (8) - “Income Taxes” included in the accompanying consolidated
financial statements for further discussion.
We must make certain estimates and judgments in determining income tax expense for financial statement
purposes. These estimates and judgments must be used in the calculation of certain tax assets and liabilities because of
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 requires us to account for uncertainties in the application of
complex tax regulations. As a result of the implementation of FIN 48, we recognize liabilities for uncertain tax positions
based on the two-step process prescribed within the interpretation. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will
be sustained on audit based upon its technical merits, including resolution of related appeals or litigation processes, if any.
The second step requires us to estimate and measure the tax benefit as the largest amount that has greater than a 50%
likelihood of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as
this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on
a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances,
changes in tax law, effectively settled issues under audit, historical experience with similar tax matters, guidance from our
tax advisors, and new audit activity. A change in recognition or measurement would result in the recognition of a tax
benefit or an additional charge to the tax provision in the period in which the change occurs.
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 SG&A, 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.
Valuation of inventory - We account for our inventory using a first-in, first-out system in which we record
inventory on our balance sheet at 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.
51
VERSION 7.0
Carrying value of long-lived assets - We consider whether circumstances or conditions exist which 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 analysis indicates
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. We complete our analysis of the carrying value of our goodwill and other intangible assets
during the first quarter of each fiscal year, or more frequently whenever events or changes in circumstances indicate that
their carrying value may not be recoverable.
Economic useful life of intangible assets - 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. We
complete our analysis of the remaining useful economic lives of our intangible assets during the first quarter of each fiscal
year.
For a more comprehensive list of our accounting policies, we encourage you to read Note (1) included in the
accompanying consolidated financial statements. Note (1) describes 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.
NEW ACCOUNTING GUIDANCE
Refer to Note (1) in the accompanying consolidated financial statements for a discussion of new accounting
pronouncements and the potential impact to our consolidated results of operations and financial position.
52
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in interest rates, currency exchange rates and the liquidity of our temporary investments are our primary
VERSION 7.0
financial market risks.
Foreign Currency Risk:
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. During fiscal 2008, the Chinese Renminbi appreciated approximately 9 percent with respect to
the U.S. Dollar. To the extent the Renminbi continues to appreciate with respect to the U.S. Dollar, the Company may
experience cost increases on such purchases, and this could adversely impact profitability.
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 Mexico are transacted in Pesos, in Brazil
are transacted in Reals, and in Canada are transacted in Canadian Dollars. 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 realize foreign currency gains.
Our net sales denominated originally in currencies other than the U.S. Dollar totaled $109,810, $94,098 and
$85,692 during the fiscal years ended 2008, 2007 and 2006, respectively. We incurred foreign currency exchange gains
of $528, $459 and $105 during the fiscal years ended 2008, 2007 and 2006, respectively.
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 certain currencies other than the U.S. Dollar. In these transactions, we execute a forward currency
contract that will settle at the end of a forecasted period. Because the size and terms of the forward contract are designed
so that its fair market value will move in the opposite direction and approximate magnitude of the underlying foreign
currency’s forecasted exchange gain or loss during the forecasted period, a hedging relationship is created. To the extent
we forecast the expected foreign currency cash flows from the date the forward contract is entered into until the date it
will settle with reasonable accuracy, we significantly lower or materially eliminate a particular currency’s exchange risk
exposure over the life of the related forward contract.
We enter into these type of agreements where we believe we have meaningful exposure to foreign currency
exchange risk. It is simply not practical for us to hedge all our exposures, nor are we able to project in any meaningful
way the possible effect and interplay of all foreign currency fluctuations on translated amounts or future earnings. This is
due to our constantly changing exposure to various currencies, the fact that each foreign currency reacts differently to the
U.S. Dollar, and the significant number of currencies involved.
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” in our consolidated
balance sheets. These amounts are subsequently recognized in “Selling, general, and administrative expense” in our
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 our consolidated statements of income. 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. Also, hedges of our foreign currency exposure are not designed to, and, therefore, cannot entirely eliminate the
effect of changes in foreign exchange rates on our consolidated financial position, results of operations and cash flows.
We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes.
53
VERSION 7.0
Interest Rate Risk:
Fluctuation in interest rates can cause variation in the amount of interest that we can earn on our available cash,
cash equivalents and temporary investments and the amount of interest expense we incur on any short-term and long-term
borrowings. Interest on our long-term debt outstanding as of February 29, 2008 is both floating and fixed. Fixed rates are
in place on $15 million of senior notes at 7.24 percent.
Floating rates are in place on $200 million of debt. Interest rates on these notes are reset as described in Note (7)
to our consolidated financial statements. Interest rates during the latest fiscal year on these notes ranged from 5.68 to 6.26
percent. During the third quarter of fiscal 2007, we decided to actively manage our floating rate debt using interest rate
swaps. The Company entered into three interest rate swaps that convert an aggregate notional principal of $200 million
from floating interest rate payments under its 5, 7 and 10 year senior notes to fixed interest rate payments ranging from
5.89 to 6.01 percent. In these transactions, we executed three contracts to pay fixed rates of interest on an aggregate
notional principal amount of $200 million at rates currently ranging from 5.04 to 5.11 percent while simultaneously
receiving floating rate interest payments which are currently set at 4.83 percent as of February 29, 2008 on the same
notional amount. The fixed rate side of the swap will not change over the life of the swap. The floating rate payments are
reset quarterly based on three month LIBOR. The resets are concurrent with the interest payments made on the
underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side
of the swap offset 100 percent of the change in any period, of the underlying debt’s floating rate payments. These swaps
are used to reduce the Company’s risk of the possibility of increased interest costs; however, should interest rates drop
significantly, we could also lose the benefit that floating rate debt can provide in a declining interest rate environment
These levels of debt, certain additional draws against our Revolving Line of Credit Agreement (whose interest
rates can vary with the term of each draw) and the uncertainty regarding the level of future interest rates increases our risk
profile.
54
The following table summarizes the various forward contracts and interest rate swap contracts we designated as
cash flow hedges that were open at the end of fiscal 2008 and 2007:
VERSION 7.0
CASH FLOW HEDGES
February 29, 2008
Range of Maturities
Contract
Type
Currency
to Deliver
Notional
Amount
Contract Date
From
To
Spot Rate at
Contract Date
Spot Rate at
Feb. 29, 2008
Weighted
Average
Forward Rate
at Inception
Weighted
Average
Forward Rate
at Feb 29,
2008
Market Value
of the
Contract in
U.S. Dollars
(Thousands)
Foreign Currency Contracts
Sell
Sell
Subtotal
Pounds
Pounds
£5,000,000
£5,000,000
11/28/2006
4/17/2007
12/11/2008
2/17/2009
1/15/2009
8/17/2009
1.9385
2.0000
1.9885
1.9885
1.9242
1.9644
1.9440
1.9281
Interest Rate Swap Contracts
Swap
Swap
Swap
Subtotal
Dollars
Dollars
Dollars
$75,000,000
$50,000,000
$75,000,000
9/28/2006
9/28/2006
9/28/2006
6/29/2009
6/29/2011
6/29/2014
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.11%, receive floating 3-month LIBOR rate)
Fair Value of Cash Flow Hedges
($99)
$182
$83
($2,506)
($3,462)
($6,481)
($12,449)
($12,366)
February 28, 2007
Range of Maturities
Contract Date
From
To
Spot Rate at
Contract Date
Spot Rate at
Feb. 28, 2007
Weighted
Average
Forward Rate
at Inception
Weighted
Average
Forward Rate
at Feb 28,
2007
Market Value
of the
Contract in
U.S. Dollars
(Thousands)
Contract
Type
Currency
to Deliver
Notional
Amount
Foreign Currency Contracts
Sell
Sell
Subtotal
Pounds
Pounds
£10,000,000
£5,000,000
5/12/2006
11/28/2006
12/14/2007
12/11/2008
2/14/2008
1/15/2009
1.8940
1.9385
1.9636
1.9636
1.9010
1.9242
1.9543
1.9408
Interest Rate Swap Contracts
Swap
Swap
Swap
Subtotal
Dollars
Dollars
Dollars
$100,000,000
$50,000,000
$75,000,000
9/28/2006
9/28/2006
9/28/2006
6/29/2009
6/29/2011
6/29/2014
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.11%, receive floating 3-month LIBOR rate)
Fair Value of Cash Flow Hedges
Counterparty Credit Risk:
($533)
($83)
($616)
($326)
($342)
($833)
($1,501)
($2,117)
Financial instruments, including foreign currency contracts and interest rate swaps, expose us to counterparty
credit risk for nonperformance. We manage our exposure to counterparty credit risk through only dealing with
counterparties who are substantial international financial institutions with significant experience using such derivative
instruments. Although our theoretical credit risk is the replacement cost at the then estimated fair value of these
instruments, we believe that the risk of incurring credit risk losses is remote.
55
Rate Sensitive Financial Instruments:
The following table shows the approximate potential fair value change in U.S. Dollars that would arise from a
hypothetical adverse 10 percent movement in the rates underlying our rate sensitive financial instruments as of February
29, 2008 and February 28, 2007:
VERSION 7.0
CHANGE IN FAIR VALUE DUE TO AN ADVERSE MOVE IN RELATED RATES
(in thousands)
Fixed Rate Long-Term Debt (1)
Interest Rate Swaps (2)
Foreign Currency Exchange Contracts (3)
Fixed Rate Long-Term Debt (1)
Interest Rate Swaps (2)
Foreign Currency Exchange Contracts (3)
Face or
Notional
Amount
February 29, 2008
Carrying
Value
Fair
Value
Estimated
Change in
Fair Value
$15,000
$200,000
£10,000
($15,000)
($12,449)
$83
($15,378)
($12,449)
$83
($214)
($3,641)
($1,936)
Face or
Notional
Amount
February 28, 2007
Carrying
Value
Fair
Value
Estimated
Change in
Fair Value
$25,000
$225,000
£15,000
($25,000)
($1,501)
($616)
($26,621)
($1,501)
($616)
($269)
($5,738)
($2,925)
(1) The underlying interest rates used as a basis for these estimates are rates quoted by our lenders on fixed rate notes of
similar term and credit quality as of the balance sheet dates shown.
(2) The underlying interest rates are based on current and future projections over the related lives of the underlying swap
contracts of expected 3 month LIBOR rates.
(3) Appreciation in the value of the U.S. Dollar against the hedged currencies would result in a decrease in the fair value
of the related foreign currency contracts. The underlying rates used to estimate the impact of such appreciation are
the forward exchange rates for the same settlement periods as the related foreign currency contracts as of the balance
sheet dates shown.
This table is for risk analysis purposes and does not purport to represent actual losses or gains in fair 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. Actual results in the future may differ materially from these estimated results due to actual developments in the
global financial markets. Because the contracts hedge an underlying exposure, we would expect a similar and opposite
change in foreign exchange gains or losses and floating interest rates over the same periods as the contracts.
We expect that as currency market conditions warrant, and if our foreign denominated transaction exposure
grows, we will continue to execute additional contracts in order to hedge against potential foreign exchange losses.
56
Risks Inherent in Cash, Cash Equivalents and Temporary Investment Holdings:
Our cash, cash equivalents and temporary investments are subject to interest rate risk, credit risk and liquidity
risk. Cash consists of both interest bearing and non-interest bearing operating disbursement accounts. Cash equivalents
consist of commercial paper and money market investment accounts. Temporary investments consist of AAA auction rate
notes, AAA variable rate demand bonds and similar investments that we normally seek to dispose of within 35 or fewer
days (“auction rate securities”). The following table summarizes the cash, cash equivalents and temporary investments
we held at the end of fiscal 2008 and 2007:
VERSION 7.0
CASH, CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
(in thousands)
Last Day of February
2008
2007
Carrying
Amount
Range of
Interest Rates
Carrying
Amount
Range of
Interest Rates
Cash and cash equivalents
Cash held in interest and non interest-bearing operating accounts - unrestricted
Cash held in non interest-bearing operating accounts - restricted
Commercial paper
Money market accounts
Total cash and cash equivalents
$
$
0.0 to 5.40%
-
3.15 to 3.19%
2.00 to 6.00%
6,871
701
1,785
48,493
57,850
2,988
485
30,490
1,492
35,455
0.00 to 3.5%
-
5.22 to 5.32%
1.83 to 6.00%
$
$
Temporary investments
Auction rate securities - collateralized by student loans
$
63,825
4.50 to 9.90%
$
55,750
5.28 to 5.33%
Most of our cash equivalents and temporary investments are in money market accounts, commercial paper and
auction rate securities with frequent rate resets, therefore we believe there is no material interest rate risk. In addition, our
commercial paper and auction rate securities are purchased from issuers with high credit ratings, therefore we believe the
credit risk is low.
At February 29, 2008, all of our temporary investments were auction rate notes collateralized by student loans
(with underlying maturities from 21 to 40 years). Approximately 94 percent of such collateral in the aggregate was
guaranteed by the U.S. government under the Federal Family Education Loan Program. Approximately 5 percent of the
collateral in the aggregate was backed by private financial guarantee insurance. Liquidity for these securities is normally
dependent on an auction process that resets the applicable interest rate at pre-determined intervals, ranging from 7 to 35
days. An auction fails when there is insufficient demand. However, this does not represent a default by the issuer of the
security. Upon an auction failure, the interest rates reset based on a formula contained in the security and this rate is
generally higher than the current market rate.
Recent credit concerns in the capital markets have significantly reduced our ability to liquidate our auction rate
securities. At this time, there is a very limited demand for these securities and limited acceptable alternatives to liquidate
such securities. Between February 29, 2008 and May 10, 2008, we have been able to liquidate $3,300 of these securities
with no gain or loss. Each of the remaining securities in our portfolio has been subject to one or more failed auctions.
Based on current market conditions, it is likely that auctions of our remaining holdings in these securities may be
unsuccessful in the near term, resulting in us continuing to hold securities beyond their next scheduled auction reset dates
and limiting the short-term liquidity of these investments. While these failures in the auction process have affected our
ability to access these funds in the near term, based on the related information currently at hand, we do not believe that
any of these securities are impaired. If the issuers or dealers are unable to successfully close future auctions, their credit
ratings deteriorate, or the credit insurer’s credit ratings deteriorate, the Company may be required to record an impairment
charge on these investments in the future.
Management continues to closely monitor market conditions with respect to these securities. Current
developments suggest that secondary trading markets for such securities are starting to evolve. Also, higher interest rate
resets may begin to encourage issuers of the underlying securities to call the securities at face value and refinance using
other alternatives. Management intends to reduce its holdings in these securities as circumstances allow but management
57
VERSION 7.0
believes that the Company has sufficient liquidity from operating cash flows and other sources, including the $50 million
Revolving Line of Credit Agreement, to allow it to continue to execute its current business plan. Because we intend to
reduce these holdings as soon as practicable and believe we will be able to within the next 12 months, we believe that the
consolidated balance sheet classification of our holdings in these securities as “Temporary investments” under current
assets continues to be appropriate.
Our cash balances at February 29, 2008 and February 28, 2007 include restricted cash of $701 and $485,
respectively, denominated in Venezuelan bolivars, shown above under the heading “Cash held in non interest-bearing
operating accounts – restricted.” The balances are primarily a result of favorable operating cash flows within the
Venezuelan market. Due to current Venezuelan government restrictions on transfers of cash out of the country and control
of exchange rates, the Company cannot repatriate this cash at this time.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
VERSION 7.0
PAGE
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of February 29, 2008 and February 28, 2007
Consolidated Statements of Income for each of the years in the three-year period
ended February 29, 2008
Consolidated Statements of Shareholders' Equity and Comprehensive Income for each of
the years in the three-year period ended February 29, 2008
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended February 29, 2008
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 29, 2008
60
61
64
65
66
67
68
105
All other schedules are omitted as the required information is included in the consolidated financial statements or is not
applicable.
59
VERSION 7.0
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.
Our internal control system was designed by, or under the supervision of, our principal executive and principal
financial officers, management, and other personnel, with guidance, where appropriate from our Board of Directors, to
provide reasonable assurance to our 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 our transactions and
dispositions of assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and Board of Directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our 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.
Our management assessed the effectiveness of our internal control over financial reporting as of February 29,
2008. 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 29, 2008, our 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.
Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on the
effectiveness of the Company's internal control over financial reporting. This report appears on page 61.
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
VERSION 7.0
To the Board of Directors and Stockholders of
Helen of Troy Limited
We have audited Helen of Troy Limited and subsidiaries’ (the “Company”) internal control over financial
reporting as of February 29, 2008, 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 included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, 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 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 the
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, the Company maintained, in all material respects, effective internal control over financial
reporting as of February 29, 2008, based on the criteria established in Internal Control—Integrated Framework issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of the Company as of February 29, 2008, and the related consolidated
statements of income, shareholders’ equity and comprehensive income, and cash flows for the year ended February 29,
2008, and our report dated May 12, 2008 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Dallas, Texas
May 12, 2008
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
VERSION 7.0
To the Board of Directors and Stockholders of
Helen of Troy Limited
We have audited the accompanying consolidated balance sheet of Helen of Troy Limited and subsidiaries (the
“Company”) as of February 29, 2008, and the related consolidated statements of income, shareholders’ equity and
comprehensive income, and cash flows for the year ended February 29, 2008. Our audit of the basic financial statements
included the financial statement schedule listed in the index appearing as Schedule II – Valuation and Qualifying
Accounts. These financial statements and the financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule
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
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 audit provides 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 29, 2008, and the consolidated results of their
operations and their cash flows for the year ended February 29, 2008, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in Note (8) to the consolidated financial statements, the Company changed its method of accounting
for unrecognized tax benefits as of March 1, 2007, in connection with the adoption of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Helen of Troy Limited and subsidiaries’ internal control over financial reporting as of February 29, 2008,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated May 12, 2008 expressed an unqualified opinion on the
effectiveness of internal control over financial reporting.
/s/ GRANT THORNTON LLP
Dallas, Texas
May 12, 2008
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
VERSION 7.0
The Board of Directors and Shareholders
Helen of Troy Limited:
We have audited the accompanying consolidated balance sheet of Helen of Troy Limited and subsidiaries as of
February 28, 2007, and the related consolidated statements of income, shareholders’ equity and comprehensive income,
and cash flows for each of the years in the two-year period ended February 28, 2007. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement schedule titled Schedule II – Valuation and
Qualifying Accounts as it relates to each of the years in the two-year period ended February 28, 2007. 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 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
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, 2007, and the results of their operations
and their cash flows for the two-year period ended February 28, 2007, 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 as it relates to each of the years in the two-year period ended February 28, 2007.
As discussed in Note (9) to the consolidated financial statements, the Company adopted Statement of Financial
Accounting Standard 123(R), Share-Based Payment, effective March 1, 2006.
/s/ KPMG LLP
Houston, Texas
May 14, 2007
63
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except shares and par value)
Assets
Current assets:
Cash and cash equivalents
Temporary investments
Trading securities, at market value
Receivables - principally trade, less allowance of $1,331 and $1,002
Inventories
Prepaid expenses
Income taxes receivable
Deferred income tax benefits
Total current assets
Property and equipment, net of accumulated depreciation
Goodwill
Trademarks, net
License agreements, net
Other intangible assets, net
Tax certificates
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
Accounts payable, principally trade
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Long-term compensation liability
Long-term income taxes payable
Deferred income tax liability
Long-term debt, less current portion
Total liabilities
Commitments and contingencies
Stockholders' equity
Cumulative preferred shares, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued
Common shares, $0.10 par. Authorized 50,000,000 shares; 30,374,703 and 30,286,406 shares
issued and outstanding
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to consolidated financial statements.
64
VERSION 7.0
Last Day of February,
2007
2008
$
57,851
63,825
36
105,615
144,867
6,290
861
16,419
395,764
$
35,455
55,750
189
115,896
144,070
8,379
-
13,479
373,218
91,611
212,922
161,922
24,972
15,544
-
9,258
911,993
$
96,669
201,002
158,061
26,362
14,653
25,144
11,163
906,272
$
$
3,000
42,763
73,697
-
119,460
$
10,000
37,779
62,384
24,924
135,087
2,566
9,181
410
212,000
343,617
2,095
-
1,673
240,000
378,855
-
-
3,038
100,328
473,361
(8,351)
568,376
911,993
$
3,029
94,951
431,003
(1,566)
527,417
906,272
$
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 before impairment and gain
Impairment charges
Gain on sale of land
Operating income
Other income (expense):
Interest expense
Other income, net
Total other income (expense)
Earnings before income taxes
Income tax expense (benefit)
Net earnings
Earnings per share:
Basic
Diluted
Weighted average common shares used in
computing net earnings per share:
Basic
Diluted
See accompanying notes to consolidated financial statements.
VERSION 7.0
Years Ended The Last Day of February,
2008
2007
2006
$
652,548
370,853
281,695
$
634,932
355,552
279,380
$
589,747
323,189
266,558
207,771
73,924
4,983
(3,609)
72,550
(15,025)
3,748
(11,277)
61,273
(236)
208,964
70,416
-
-
70,416
(17,912)
2,643
(15,269)
55,147
5,060
195,180
71,378
-
-
71,378
(16,866)
1,290
(15,576)
55,802
6,492
$
61,509
$
50,087
$
49,310
$
$
2.01
1.93
$
$
1.66
1.58
$
$
1.65
1.56
30,531
31,798
30,122
31,717
29,919
31,605
65
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(in thousands, except number of shares)
Balances March 1, 2005
$
2,983
$
87,723
$
(1,784)
$
331,606
$
420,527
Common
Shares
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Retained
Earnings
Income (Loss)
Total
Shareholders'
Equity
VERSION 7.0
Components of comprehensive income:
Net earnings
Unrealized gain on cash flow hedges - foreign currency, net
Total comprehensive income
Exercise of stock options, including tax benefits of $402
Issuance of common shares in connection with employee
stock purchase plan
Balances February 28, 2006
Components of comprehensive income:
Net earnings
Unrealized loss on cash flow hedges - interest rate swaps, net
Unrealized gain on cash flow hedges - foreign currency, net
Total comprehensive income
Share-based compensation
Exercise of stock options, including tax benefits of $544
Issuance of common shares in connection with employee
stock purchase plan
Balances February 28, 2007
Cumulative-effect adjustments, net of tax
Adoption of FIN 48
Components of comprehensive income:
Net earnings
Unrealized loss on cash flow hedges - interest rate swaps, net
Unrealized gain on cash flow hedges - foreign currency, net
Total comprehensive income
Share-based compensation
Exercise of stock options, including tax benefits of $4,417
Issuance of common shares in connection with employee
stock purchase plan
Acquisition and retirement of 1,095,392 common shares
Balances February 29, 2008
See accompanying notes to consolidated financial statements.
-
-
-
-
-
2,944
49,310
-
16
2,184
-
-
49,310
2,944
52,254
2,200
2
3,001
394
90,300
-
1,160
-
380,916
396
475,377
-
-
-
693
3,586
372
94,951
-
(991)
(1,735)
-
-
50,087
-
-
-
-
50,087
(991)
(1,735)
47,361
693
3,611
-
(1,566)
-
431,003
375
527,417
(6,144)
-
(5,911)
(12,055)
-
-
-
-
25
3
3,029
-
-
-
-
-
-
-
-
(7,225)
440
-
116
1,162
22,578
-
-
61,509
-
-
-
-
61,509
(7,225)
440
54,724
1,162
22,694
3
(110)
3,038
$
432
(12,651)
100,328
$
-
-
(8,351)
$
-
(13,240)
473,361
$
435
(26,001)
568,376
$
66
VERSION 7.0
Years Ended The Last Day of February,
2007
2006
2008
$
61,509
$
50,087
$
49,310
14,298
329
1,162
282
189
1,377
(3,573)
4,983
17,582
7,039
903
(408)
4,968
2,684
(3,418)
109,906
(7,709)
(36,500)
(178,275)
170,200
5,702
(738)
(47,320)
-
(35,000)
-
4,854
(5,731)
(4,505)
192
(40,190)
14,301
(152)
693
-
(2)
(677)
(225)
-
(8,455)
24,331
914
2,579
7,604
5,770
(6,362)
90,406
(7,395)
-
(148,625)
92,875
666
-
(62,479)
7,660
(22,634)
-
3,986
-
-
196
(10,792)
12,427
(1,317)
-
-
95
(2,954)
(1,304)
-
5,767
(30,926)
2,628
1,819
(4,017)
(2,107)
5,334
34,755
(52,367)
-
(15,400)
15,400
16,850
253
(35,264)
4,974
(10,000)
(91)
2,194
-
-
-
(2,923)
22,396
35,455
57,851
17,135
18,320
35,455
$
(3,432)
21,752
18,320
$
$
$
$
$
14,969
24,692
15,938
16,939
$
7,935
$
$
-
$
15,342
4,062
$
$
-
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
Provision for doubtful receivables
Share-based compensation
Write off of deferred finance costs due to early extinguishment of debt
Realized and unrealized (gain) loss on securities
Deferred taxes
Gains on the disposal of property, plant and equipment
Impairment charges
Changes in operating assets and liabilities, net of effects of acquisition of business:
Accounts receivable
Inventories
Prepaid expenses
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
Acquisition of business
Purchase of temporary investments
Sale of temporary investments
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 long-term debt
Payment of financing costs
Proceeds from exercise of stock options and employee stock purchases, net
Common share repurchases
Payment of tax obligations resulting from cashless option exercise
Share-based compensation tax benefit
Net cash used 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 shares received as exercise price of options
See accompanying notes to consolidated financial statements.
67
VERSION 7.0
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
When used in these notes, the terms “Helen of Troy,” “the Company,” “we”, “our” or “us” means Helen of Troy
Limited, a Bermuda company, and its subsidiaries.
We are a global designer, developer, importer, marketer and distributor of an expanding portfolio of brand-name
consumer products. We have two segments: Personal Care and Housewares. Our Personal Care segment’s products
include hair dryers, straighteners, curling irons, hairsetters, women’s shavers, mirrors, hot air brushes, home hair
clippers and trimmers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs, hair accessories,
liquid hair styling products, men’s fragrances, men’s deodorants, foot powder, body powder, and skin care products.
Our Housewares segment reports the operations of OXO International (“OXO”) whose products include kitchen tools,
cutlery, bar and wine accessories, household cleaning tools, food storage containers, tea kettles, trash cans, storage
and organization products, hand tools, gardening tools, kitchen mitts and trivets, barbeque tools, and rechargeable
lighting products. Both our Personal Care and Housewares segments sell their products primarily through mass
merchandisers, drug chains, warehouse clubs, catalogs, grocery stores and specialty stores. In addition, we sell
appliances from our Personal Care segment to beauty supply retailers and wholesalers. We purchase our products
from unaffiliated manufacturers, most of which are located in the People's Republic of China 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.
For both fiscal 2007 and fiscal 2006, we have reclassified certain amounts, and in some cases provided additional
information in our consolidated financial statements and accompanying footnotes to conform to the current year’s
presentation. These reclassifications have no impact on previously reported net earnings.
In these consolidated financial statements and accompanying notes, amounts shown are in thousands of U.S. Dollars,
except as otherwise indicated.
(b) Consolidation
Our consolidated financial statements include the accounts of Helen of Troy Limited and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
(c) Cash, cash equivalents and temporary investments
Our cash balances at February 29, 2008 and February 28, 2007 include restricted cash of $701 and $485, respectively,
denominated in Venezuelan bolivars. The balances are primarily a result of favorable operating cash flows within the
Venezuelan market. Due to current Venezuelan government restrictions on transfers of cash out of the country and
control of exchange rates, the Company cannot repatriate this cash at this time.
We consider commercial paper and money market investment accounts to be cash equivalents. Cash equivalents
comprised $50,278 and $31,982 of the amount reported on our consolidated balance sheets as “Cash and cash
equivalents” at fiscal year ends 2008 and 2007, respectively.
We have made investments of excess cash on hand in AAA auction rate notes, AAA variable rate demand bonds, and
similar investments that we normally seek to dispose of within 35 or fewer days. These are classified on our
consolidated balance sheet as “Temporary investments” and recorded at cost, which we believe approximates their
current fair value. At February 29, 2008 and February 28, 2007, we held $63,825 and $55,750, respectively, of
temporary investments.
68
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
VERSION 7.0
At February 29, 2008, all of our temporary investments were auction rate notes collateralized by student loans (with
underlying maturities from 21 to 40 years). Approximately 94 percent of such collateral in the aggregate was
guaranteed by the U.S. government under the Federal Family Education Loan Program. Approximately 5 percent of
the collateral in the aggregate was backed by private financial guarantee insurance. Liquidity for these securities is
normally dependent on an auction process that resets the applicable interest rate at pre-determined intervals, ranging
from 7 to 35 days. An auction fails when there is insufficient demand. However, this does not represent a default by
the issuer of the security. Upon an auction failure, the interest rates reset based on a formula contained in the security
and this rate is generally higher than the current market rate.
Recent credit concerns in the capital markets have significantly reduced our ability to liquidate our auction rate
securities. At this time, there is a very limited demand for these securities and limited acceptable alternatives to
liquidate such securities. Based on current market conditions, it is likely that auctions of our holdings in these
securities may be unsuccessful in the near term, resulting in us continuing to hold securities beyond their next
scheduled auction reset dates and limiting the short-term liquidity of these investments. While these failures in the
auction process have affected our ability to access these funds in the near term, based on the related information
currently at hand, we do not believe that any of these securities are impaired. If the issuers or dealers are unable to
successfully close future auctions, their credit ratings deteriorate, or the credit insurer’s credit ratings deteriorate, the
Company may be required to record an impairment charge on these investments in the future.
Because we intend to reduce these holdings as soon as practicable and believe we will be able to within the next 12
months, we believe that the consolidated balance sheet classification of our holdings in these securities as “Temporary
investments” under current assets continues to be appropriate.
Note (14) contains additional information regarding our cash equivalents and temporary investments.
(d) Trading securities
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. Trading securities are currently 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.
The sum of unrealized and realized net gains and (losses) attributable to trading securities totaled ($189), $2 and ($95)
in fiscal 2008, 2007, and 2006, respectively.
(e) 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. The Company has significant
concentrations of credit risk with three major customers. As of February 29, 2008, approximately 39% of the
Company’s trade receivables were due from these customers.
(f) 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 distribution centers, and general and administrative expenses directly attributable to the
procurement of inventory.
69
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
VERSION 7.0
General and administrative expenses in inventory include all the expenses of operating the Company's sourcing
activities, expenses incurred for production monitoring, and expenses incurred for product design, engineering and
packaging. We charged $12,493, $11,457 and $10,667 of such general and administrative expenses to inventory
during fiscal years 2008, 2007, and 2006, respectively. We estimate that $4,757 and $4,873 of general and
administrative expenses directly attributable to the procurement of inventory were included in our inventory balances
on hand at fiscal year ends 2008 and 2007, respectively.
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. 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.
(g) 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.
(h) 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 o meter®, Bed Head® and Dr. Scholl's® trademarks. Our license agreements are
reported on our 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 that 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
trademark license agreements comprised 48, 53 and 52 percent of total consolidated net sales for fiscal years 2008,
2007, and 2006, 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 generally
recorded on our consolidated balance sheets based upon the appraised cost of acquiring the trademark, net of any
accumulated amortization and impairment charges. 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.
Additionally, we incur certain internal costs, primarily legal fees in connection with the design, development and
filing of patents on new products under internal development that 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 of
our customer lists or the term of the non-compete agreement. See Notes (3) and (4) for additional information on our
intangible assets.
70
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(i) Carrying value of long-lived assets
VERSION 7.0
We evaluate goodwill and indefinite lived intangibles for impairment annually during the first quarter of each fiscal
year. This evaluation coincides with the completion of our annual plans for the year.
We evaluate goodwill at the reporting unit level. If the carrying amount of the reporting unit is greater than the fair
value, impairment may be present. We assess the fair value of our reporting units for its goodwill based on discounted
cash flow models. Assumptions critical to our fair value estimates under the discounted cash flow model include the
discount rate, projected revenue growth, projected long-term growth rates in the determination of terminal values, and
product and operating costs. We measure the amount of any goodwill impairment based upon the estimated fair value
of the underlying assets and liabilities of the reporting unit, including any unrecognized intangible assets, and
estimates of the implied fair value of goodwill. An impairment charge is recognized to the extent the recorded
goodwill exceeds the implied fair value of goodwill.
The indefinite-lived intangible assets we evaluate are trademarks and certain licenses. We assess the fair value of our
intangibles based on discounted cash flow models. Assumptions critical to our fair value estimates under the
discounted cash flow model include the discount rate, projected revenue growth, projected long-term growth rates in
the determination of terminal values, product and operating costs. An impairment charge is recorded if the carrying
amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
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.
As further discussed in Note (3) to these consolidated financial statements, in the third quarter of fiscal 2008, we
recorded pretax impairment charges totaling $4,983 ($4,883 after tax) representing the carrying value of our Epil-
Stop® and TimeBlock® trademarks. We currently expect to continue to hold these trademarks for use.
(j) Economic useful lives and amortization of intangible assets
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 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. All of our
goodwill is held in jurisdictions that do not allow deductions for tax purposes. 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 $3,266, $2,961 and $3,202 during fiscal 2008, 2007 and 2006, respectively. See Notes (3) and
(4) to these consolidated financial statements for more information about our intangible assets.
(k) Deferred financing costs
The Company has incurred debt issuance costs in connection with its long-term debt. These costs are capitalized as
deferred financing costs and amortized using the straight-line method over the term of the related debt, which
approximates the effective interest method of amortization.
71
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(l) 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 $7,635 and $6,450 as of fiscal year ends 2008 and 2007,
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:
VERSION 7.0
ACCRUAL FOR WARRANTY RETURNS
(in thousands)
Balance at the beginning of the period
Additions to the accrual
Reductions of the accrual - payments and credits issued
Balance at the end of the period
Years Ended The Last Day of February,
2007
2006
2008
$
$
$
6,450
22,722
(21,537)
7,635
7,373
18,080
(19,003)
6,450
5,767
22,901
(21,295)
7,373
$
$
$
Certain entities whose financial statements are a part of these consolidated financial statements have guaranteed
obligations of other entities within the consolidated group. Financial Accounting Standards Board (FASB)
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" requires disclosure of these guarantees, our product warranty liabilities and
various indemnity arrangements to which we are a party. Additional disclosures related to this policy are contained in
Notes (5), (6), (7) and (10) to these consolidated financial statements.
(m) 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 (7) to these consolidated
financial statements for our assessment of the fair value of our guaranteed senior notes and other long-term debt. 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.
During fiscal 2007, we entered into interest rate swaps (the “swaps”), to protect our funding costs against rising
interest rates. The interest rate swaps allowed us to raise long-term borrowings at floating rates and effectively swap
them into fixed rates. Under our swaps, we agree with another party to exchange quarterly, the difference between
fixed-rate and floating-rate interest amounts calculated by reference to notional amounts that perfectly match our
underlying debt. Under these swap agreements, we pay the fixed rates and receive the floating rates. The swaps settle
quarterly and terminate upon maturity of the related debt.
The fair values of our foreign exchange contracts and interest rate swaps are considered highly effective under
Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS 133”). See Note (14) to these consolidated financial statements for more information on our
hedging activities.
72
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(n) Income taxes and uncertain tax positions
VERSION 7.0
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 ultimate realization of our deferred
tax assets depends upon generating sufficient future taxable income during the periods in which our temporary
differences become deductible or before our net operating loss and tax credit carryforwards expire. The effects of any
tax rate changes are recognized in the periods when they become effective.
Effective March 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation 48,
“Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). In
accordance with FIN 48, we recognize the benefit of a tax position, if that position will more likely than not be
sustained in an audit, based on the technical merits of the position. If the tax position meets the more-likely-than-not
recognition threshold, the tax effect is recognized at the largest amount of the benefit that has greater than a fifty
percent likelihood of being realized upon ultimate settlement. In accordance with FIN 48, liabilities created for
unrecognized tax benefits are presented as a separate liability and not combined with deferred tax liabilities or assets,
and consistent with past practice, we recognize interest and penalties accrued related to unrecognized tax benefits in
the provision for income taxes.
Note (8) to these consolidated financial statements contains additional information regarding our income taxes and the
impacts of the adoption of FIN 48.
(o) 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.
Sales and value added taxes collected from customers and remitted to governmental authorities are excluded from net
sales reported in the consolidated financial statements.
(p) 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 statements 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 $12,161, $12,568 and $12,124
for the fiscal years 2008, 2007, and 2006, respectively.
73
VERSION 7.0
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(q) 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,
including amounts paid to customers for local media and print advertising, of $30,217, $28,678 and $29,066 during
fiscal years 2008, 2007, and 2006, respectively.
(r) 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. These expenses include distribution center costs, third party logistics costs and
outbound transportation costs. Our expenses for shipping and handling totaled $51,944, $58,863 and $51,017 during
fiscal years 2008, 2007, and 2006, respectively. We bill our customers for charges for shipping and handling on
certain sales made directly to consumers and retail customers ordering relatively small dollar amounts of product.
Such charges are recorded as a reduction of our shipping and handling expense and are not material in the aggregate.
(s) Foreign currency transactions and related 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 as part of SG&A. Our foreign exchange gains, including the
impact of currency hedges, totaled $528, $459 and $105 during fiscal years 2008, 2007, and 2006, 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 account for these transactions as hedges in
accordance with SFAS 133 which 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 shareholders' equity and comprehensive income,
depending on the type of hedging instrument and the effectiveness of the hedges. In our case, we record these
transactions as part of SG&A in our consolidated statements of income, or the line entitled "Unrealized gain (loss) on
cash flow hedges – foreign currency" in our consolidated statement of shareholders' equity and comprehensive
income, as appropriate. All our current contracts are 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
effective. Any ineffectiveness is recorded in our consolidated statements of income. See Note (14) to these
consolidated financial statements for a further discussion of our hedging activities.
(t) Share-based compensation plans
Prior to March 1, 2006, we applied the disclosure-only provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). In accordance with the provisions of
SFAS 123, we applied APB 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations
in accounting for our share-based compensation plans and, accordingly, did not recognize compensation expense for
stock options because we issued options at exercise prices equal to or greater than the fair market value at date of
grant.
Effective March 1, 2006, we adopted Statement of Financial Accounting Standards No. 123R (“SFAS 123R”), which
revises SFAS 123 and supersedes APB 25. SFAS 123R requires all share-based payments to employees to be
recognized in the financial statements based on their fair values using an option-pricing model at the date of grant.
We have elected to use the modified prospective method for adoption, which requires compensation expense to be
recorded for all unvested stock options beginning in the first quarter of adoption, based on the fair value at the original
74
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
VERSION 7.0
grant date. The fair value of these options are expensed using the straight line attribution method over their original
vesting terms. Prior year financial statements have not been restated. We have elected to use the alternative short-cut
method to calculate the historical pool of windfall tax benefits upon adoption of SFAS 123R in accordance with
FASB Staff Position (“FSP”) No. FAS 123R-3, Transition Election Related to Accounting for the Tax Effects of
Share-based Payment Awards. For the years ended February 29, 2008 and February 28, 2007, we have determined
that we have a pool of windfall tax benefits.
Additionally pursuant to SFAS 123R, we have estimated forfeitures for options awards at the dates of grant based on
historical experience and will revise as necessary if actual forfeitures significantly differ from these estimates.
We use a Black-Scholes option-pricing model to calculate the fair value of options. This model requires various
judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used
in the model change significantly, share-based compensation may differ materially in the future from that recorded in
the current period.
The impact from the adoption of SFAS 123R during fiscal 2007, decreased earnings before taxes, net earnings, basic
and diluted earnings per share by $693, $497, and $0.02 per share, respectively, for the fiscal year ended February 28,
2007.
See Note (9) to these consolidated financial statements for more information on our share based compensation plans.
(u) Interest income
Interest income is included in "Other income, net" on the consolidated statements of income. Interest income totaled
$3,573, $1,965 and $888 in fiscal 2008, 2007, and 2006, respectively. Interest income is normally earned on cash
invested in short-term accounts, cash equivalents, and temporary investments. However, in fiscal 2006, interest
income included interest earned on an income tax receivable of $463.
(v) 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 outstanding options for common
shares that were “in-the-money,” meaning that the exercise price of the options was less than the average market price
of our common shares during the year. “Out-of-the-money” options are outstanding options to purchase common
shares that were excluded from the computation of earnings per share because the exercise price of the options was
greater than the average market price of our common shares during the year.
For fiscal years 2008, 2007, and 2006, the components of basic and diluted shares were as follows:
WEIGHTED AVERAGE DILUTED SECURITIES
(in thousands)
Years Ended The Last Day of February,
2007
2006
2008
Basic weighted average shares outstanding
Additional shares assuming conversion of in-the-money stock options
and use of proceeds to repurchase outstanding shares
Diluted weighted average shares outstanding assuming conversion
In-the-money options
Out-of-the-money options
30,531
1,267
31,798
3,914
1,922
30,122
1,595
31,717
6,559
192
29,919
1,686
31,605
5,989
934
75
VERSION 7.0
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(w) New accounting standards adopted
Uncertainty in Income Taxes - In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006. We adopted the provisions of FIN 48 effective March 1, 2007. Item (n) above
and Note (8) to these consolidated financial statements contain additional information regarding our associated
accounting policies and the impacts of the adoption of FIN 48.
(x) New accounting standards subject to future adoption
Liability Recognition on Endorsement Split-Dollar Life Insurance Arrangements - In June 2006, the Emerging
Issues Task Force of the FASB (“EITF”) reached a consensus on EITF Issue No. 06-4 ("EITF 06-4"), "Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements," which requires the application of the provisions of SFAS No. 106 (“SFAS 106”), “Employers’
Accounting for Postretirement Benefits Other Than Pensions” to endorsement split-dollar life insurance arrangements
(if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the
arrangement is, in substance, an individual deferred compensation contract). SFAS 106 would require us to recognize
a liability for the discounted value of the future premium benefits that we will incur through the death of the
underlying insureds. An endorsement-type arrangement generally exists when the Company owns and controls all
incidents of ownership of the underlying policies. EITF 06-4 is currently effective for fiscal years beginning after
December 15, 2007. The Company has undertaken a review of the endorsement type policy agreement it currently
maintains and believes that all subject policies fall outside the scope of EITF 06-4 because the agreements will not
survive the retirement of the affected employee. Accordingly, we believe the adoption of EITF 06-4 will have no
impact on our financial statements.
Fair Value Measurements - In September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS
157 also applies under other accounting pronouncements that require or permit fair value measurements. The
statement does not require any new fair value measurements, but will potentially require additional disclosures
regarding existing fair value measurements that we currently report. With respect to financial assets and liabilities,
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. With respect to non-financial assets and liabilities, SFAS 157 is now effective for
financial statements issued for fiscal years beginning after November 15, 2008 and interim periods within those fiscal
years. We are currently determining the effect, if any, this pronouncement will have on our financial statements.
Fair Value Option for Financial Assets and Financial Liabilities - In February 2007, the FASB issued Statement of
Financial Accounting Standards No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities-
Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that are not currently required to be measured
at fair value. SFAS 159 also established presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types of assets and liabilities. The
statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. We are currently determining the effect, if any, this pronouncement will have on our
financial statements.
76
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
VERSION 7.0
Liability Recognition on Collateral Assignment Split-Dollar Life Insurance Arrangements - In March 2007, the
EITF reached a consensus on EITF Issue No. 06-10 ("EITF 06-10"), "Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements," which provides
guidance to help companies determine whether a liability for the postretirement benefit associated with a collateral
assignment split-dollar life insurance arrangement should be recorded in accordance with either SFAS 106 (if, in
substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the arrangement
is, in substance, an individual deferred compensation contract). EITF 06-10 also provides guidance on how a
company should recognize and measure the asset in a collateral assignment split-dollar life insurance contract. EITF
06-10 is effective for fiscal years beginning after December 15, 2007. We have certain life insurance policies which
are subject to the provisions of this new pronouncement. We believe the effects of recording the resulting liability,
upon the adoption of the new pronouncement, will not be material to our financial statements.
Accounting for Business Combinations - In December 2007, the FASB issued SFAS No. 141 (revised 2007),
“Business Combinations” (“SFAS No. 141(R)”), which establishes the principles and requirements for how an
acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No.
141(R) replaces SFAS No. 141, “Business Combinations.” SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008 and will have no impact on transactions recorded to date.
Disclosures about Derivative Instruments and Hedging Activities - In March 2008, the FASB issued Statement of
Financial Accounting Standards No. 161 (“SFAS 161”), "Disclosures about Derivative Instruments and Hedging
Activities," which amends SFAS 133 and expands disclosures to include information about the fair value of
derivatives, related credit risks and a company's strategies and objectives for using derivatives. SFAS 161 is effective
for fiscal periods beginning on or after November 15, 2008. Early adoption is encouraged. We are currently
determining the effect, if any, this pronouncement will have on our financial statements.
77
NOTE 2 - PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
PROPERTY AND EQUIPMENT
(in thousands)
Land
Buildings and improvements
Computer and other equipment
Molds and tooling
Transportation equipment
Furniture and fixtures
Construction in process
Less accumulated depreciation
Property and equipment, net
VERSION 7.0
Estimated
Useful Lives
(Years)
Last Day of February,
2007
2008
$
$
-
10 - 40
3 - 10
1 - 3
3 - 5
5 - 15
-
9,073
62,832
42,461
8,299
3,991
8,168
1,311
136,135
(44,524)
91,611
9,537
62,666
41,265
6,538
3,912
7,815
261
131,994
(35,325)
96,669
$
$
On May 31, 2006, we sold 3.9 acres of raw land adjacent to our El Paso, Texas office and distribution center. The land
was sold for $666 and we recorded a gain on the sale of $422, included in other income in fiscal 2007.
On September 9, 2007, we sold 16.5 acres of raw land adjacent to our El Paso, Texas office and distribution center. The
land was sold for $5,998, less selling costs of $390 and resulted in a pretax gain on the sale of $3,609.
On December 20, 2007, we acquired 30.6 acres of raw land adjacent to our Southaven Mississippi distribution center for a
purchase price of $1,534.
We recorded $10,403, $10,082, and $7,264 of depreciation expense for fiscal 2008, 2007, and 2006, respectively. Capital
expenditures for property and equipment totaled $7,302, $6,629 and $51,929 in fiscal 2008, 2007, and 2006, respectively.
Through the end of fiscal 2006, we leased 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. This lease was terminated on February 28, 2006, and associated inventory, furniture and
equipment, and records storage were consolidated into other existing facilities. During fiscal 2006, we paid this real-
estate partnership rent of $507.
NOTE 3 - INTANGIBLE ASSETS
In the fourth quarter of fiscal 2007, we commenced our domestic re-introduction of the newly formulated Epil-Stop®
product line. In response to unsatisfactory consumer sales and the discontinuance of the Epil-Stop® line by certain
retailers, in the third quarter of fiscal 2008, we conducted a strategic review of the Epil-Stop® trademark. We also
evaluated the future potential of our TimeBlock® brand in light of our recent experience with Epil-Stop®. From these
reviews, we concluded that the future undiscounted cash flows associated with these trademarks were insufficient to
recover their carrying values. We also believe that any significant additional investments in these brands will not generate
potential returns in line with the Company’s investment expectations. Accordingly, we recorded pretax impairment
charges totaling $4,983 ($4,883 after tax) representing the carrying value of these trademarks. We currently expect to
continue to hold these trademarks for use.
78
NOTE 3 - INTANGIBLE ASSETS, CONTINUED
We cannot predict the occurrence of certain events that might adversely affect future reported values of goodwill or other
intangible assets. Such events may include, but are not limited to, strategic decisions made in response to economic and
competitive conditions, the impact of the economic environment on the Company’s customer base or a material negative
change in the Company’s relationships with significant customers. See Note (19) to these consolidated financial
statements for more information regarding impairments.
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 29, 2008 and February 28, 2007.
VERSION 7.0
INTANGIBLE ASSETS
(in thousands)
Type / Description
Segment
Estimated
Life
Gross
February 29, 2008
Accumulated
Carrying Amortization Carrying
(if Applicable) Amount
Amount
Net
Gross
February 28, 2007
Accumulated
Carrying Amortization Carrying
(if Applicable) Amount
Amount
Net
Goodwill:
OXO
All other goodwill
Housewares
Personal Care
Indefinite
Indefinite
$
166,131
46,791
212,922
$
-
-
-
$
166,131
46,791
212,922
$
165,934
35,068
201,002
$
-
-
-
$
165,934
35,068
201,002
Trademarks:
OXO
Brut
All other - definite lives
All other - indefinite lives
Housewares
Personal Care
Personal Care
Personal Care
Indefinite
Indefinite
(1)
Indefinite
Licenses:
Seabreeze
All other licenses
Personal Care
Personal Care
Indefinite
8 - 25 Years
Other:
Patents, customer lists and
non-compete agreements
Housewares
Personal Care
2 - 14 Years
3 - 8 Years
75,554
51,317
338
34,948
162,157
18,000
24,315
42,315
19,741
2,235
21,976
-
-
(235)
-
(235)
-
(17,343)
(17,343)
75,554
51,317
103
34,948
161,922
18,000
6,972
24,972
(6,063)
(369)
(6,432)
13,678
1,866
15,544
75,554
51,317
338
31,082
158,291
18,000
24,315
42,315
19,214
-
19,214
-
-
(230)
-
(230)
-
(15,953)
(15,953)
75,554
51,317
108
31,082
158,061
18,000
8,362
26,362
(4,561)
-
(4,561)
14,653
-
14,653
Total
$
439,370
$
(24,010)
$
415,360
$
420,822
$
(20,744)
$
400,078
(1) Includes one fully amortized trademark and one trademark with an estimated life of 30 years.
79
NOTE 3 - INTANGIBLE ASSETS, CONTINUED
The following table summarizes the amortization expense attributable to intangible assets for the fiscal years 2008, 2007,
and 2006, as well as estimated amortization expense for the fiscal years 2009 through 2013.
VERSION 7.0
AMORTIZATION OF INTANGIBLES
(in thousands)
Aggregate Amortization Expense
For the twelve months ended
February 29, 2008
February 28, 2007
February 28, 2006
Estimated Amortization Expense
For the fiscal years ended
February 2009
February 2010
February 2011
February 2012
February 2013
$
$
$
3,266
2,961
3,202
$
$
$
$
$
3,090
3,046
2,362
2,214
2,180
Many of the license agreements under which we sell or intend 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, 2009, minimum royalties due and minimum advertising expenditures under certain of our license agreements
total $3,669 and $6,500, respectively.
80
VERSION 7.0
NOTE 4 - ACQUISITIONS AND NEW TRADEMARK LICENSE AGREEMENTS
Belson Products Acquisition - Effective May 1, 2007, we acquired certain assets of Belson Products (“Belson”), formerly
the professional salon division of Applica Consumer Products, Inc. for a cash purchase price of $36,500 plus the
assumption of certain liabilities. This transaction was accounted for as a purchase of a business and was paid for using
available cash on hand. Belson is a supplier of personal care products to the professional salon industry. Belson markets
its professional products to major beauty suppliers and other major distributors under brand names including Belson®,
Belson Pro®, Gold ‘N Hot®, Curlmaster®, Premiere®, Profiles®, Comare®, Mega Hot® and Shear Technology®.
Products include electrical hair care appliances, spa products and accessories, professional brushes and combs, and
professional styling shears. Belson products are principally distributed throughout the U.S., as well as Canada and the
United Kingdom.
Net assets acquired consist principally of accounts receivable, finished goods inventories, goodwill, patents, trademarks,
tradenames, product design specifications, production know-how, certain fixed assets, distribution rights and customer
lists, a covenant not-to-compete, less certain customer related operating accruals and liabilities. We have completed our
analysis of the economic lives of all the assets acquired and determined the appropriate allocation of the initial purchase
price based on an independent appraisal. The following schedule presents the net assets of Belson acquired at closing:
Belson Products - Net Assets Acquired on May 1, 2007
(in thousands)
Accounts receivable, net
Inventories
Fixed assets
Goodwill
Trademarks and other intangible assets
Total assets acquired
Less: Current liabilities assumed
Net assets acquired
$
7,449
8,426
139
11,296
11,085
38,395
(1,895)
36,500
$
Subsequent to the acquisition, we made certain post closing adjustment to increase goodwill by $427.
Bed Head® by TIGI and Toni&Guy® - On December 6, 2006, we entered into licensing arrangements with affiliates of
Mascolo Limited for the use of the Bed Head® by TIGI and Toni&Guy® trademarks for personal care products in the
Western Hemisphere. We have introduced a line of hair care appliance products under the Bed Head® by TIGI and
Toni&Guy® brand names that currently includes hair dryers, hair styling irons, straighteners, brushes and hair care
accessories. We have begun marketing Bed Head® products primarily in the U.S., with some limited introductions
elsewhere in the Western Hemisphere. Initial domestic product shipments began during the first quarter of fiscal 2008.
Candela® Acquisition - On September 25, 2006, we acquired all rights to trademarks, certain patents, formulas, tooling
and production processes to Vessel, Inc.’s rechargeable lighting products under various brand names, including Candela®.
The products are sold by our Housewares segment. Shipments of the newly restaged line of Candela® products under the
OXO® brand commenced in the third quarter of fiscal 2008. We believe the acquired trademarks have indefinite
economic lives. The following schedule presents the assets acquired at closing and management’s purchase price
allocation:
Assets Acquired from Vessel, Inc.
(in thousands)
Trademarks
Patents
Fixed Assets
Total assets acquired
81
$
$
354
120
26
500
VERSION 7.0
NOTE 5 – SHORT-TERM DEBT
We entered into a five year revolving credit agreement (“Revolving Line of Credit Agreement”), dated as of June 1, 2004,
between Helen of Troy L.P., as borrower, and Bank of America, N.A. and other lenders. 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 dates to consolidated earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the period of the four consecutive fiscal quarters most recently
ended. The credit line allows for the issuance of letters of credit up to $10 million. We incur loan commitment fees at a
current rate of 0.25 percent per annum on the unused balance of the Revolving Line of Credit Agreement and letter of
credit fees at a current rate of 1.0 percent per annum on the face value of the letter of credit. During the second quarter of
fiscal 2008, we permanently reduced the commitment under our Revolving Line of Credit Agreement from $75 million to
$50 million, which has resulted in a proportionate decline in the cost of associated commitment fees under the facility.
Outstanding letters of credit reduce the borrowing limit dollar for dollar. During fiscal 2008, we did not draw on the
Revolving Line of Credit facility. As of February 29, 2008, there were no revolving loans and $1,447 of open letters of
credit outstanding against this facility.
The Revolving Line of Credit Agreement requires the maintenance of certain debt/EBITDA and fixed charge coverage
ratios and contains other customary covenants. Certain covenants, as of the latest balance sheet date, limit our total
outstanding indebtedness from all sources to no more than 3.5 times the latest twelve months’ trailing EBITDA. As of
February 29, 2008, these covenants effectively limited our ability to incur no more than $123,991 of additional debt from
all sources, including draws on our Revolving Line of Credit facility. The agreement is guaranteed, on a joint and several
basis, by the parent company, Helen of Troy Limited, and certain subsidiaries. Additionally, our debt agreements restrict
us from incurring liens on any of our properties, except under certain conditions. Any amounts outstanding under the
Revolving Line of Credit Agreement will mature on June 1, 2009. As of February 29, 2008, we were in compliance with
the terms of this agreement.
NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
A summary of other accrued expenses and other current liabilities is as follows:
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
(in thousands)
Last Day of February,
2007
2008
Accrued sales returns, discounts and allowances
Accrued compensation
Accrued advertising
Accrued interest
Accrued royalties
Accrued professional fees
Accrued benefits and payroll taxes
Accrued freight
Accrued property, sales and other taxes
Foreign currency contracts
Interest rate swaps
Other
Total accrued expenses and current liabilities
82
$
$
24,969
11,675
6,917
2,092
3,029
1,273
1,431
1,446
1,196
(83)
12,449
7,303
73,697
25,153
9,098
9,583
2,833
2,549
1,226
1,773
1,727
959
616
1,501
5,366
62,384
$
$
NOTE 7 - LONG-TERM DEBT
A summary of long-term debt as of the last day of fiscal years 2008 and 2007 is as follows:
VERSION 7.0
LONG-TERM DEBT
(dollars in thousands)
$40,000 unsecured Senior Note Payable at a
fixed interest rate of 7.01%. Interest payable
quarterly, principal of $10,000 payable
annually beginning January 2005.
$15,000 unsecured Senior Note Payable at a
fixed interest rate of 7.24%. Interest payable
quarterly, principal of $3,000 payable
annually beginning July 2008.
$100,000 unsecured floating interest rate 5
Year Senior Notes. Interest set and payable
quarterly at three-month LIBOR plus 85 basis
points. Principal is due at maturity. Notes
can be prepaid without penalty. (1) (2)
$50,000 unsecured floating interest rate 7
Year Senior Notes. Interest set and payable
quarterly at three-month LIBOR plus 85 basis
points. Principal is due at maturity. Notes can
be prepaid without penalty. (1)
$75,000 unsecured floating interest rate 10
Year Senior Notes. Interest set and payable
quarterly at three-month LIBOR plus 90 basis
points. Principal is due at maturity. Notes can
be prepaid without penalty. (1)
Total long-term debt
Less current portion of long-term debt
Long-term debt, less current portion
Original
Month/Year
Borrowed
Range of Interest Rates
2008
2007
Matures
Last Day of February,
2007
2008
01/96
7.01%
7.01%
01/08
$
-
$
10,000
07/97
7.24%
7.24%
07/12
15,000
15,000
06/04
5.89%
06/04
5.89%
06/04
6.01%
5.37%
to
6.35%
5.37%
to
6.35%
5.42%
to
6.40%
06/09
75,000
100,000
06/11
50,000
50,000
06/14
75,000
215,000
(3,000)
212,000
$
75,000
250,000
(10,000)
240,000
$
(1) Floating interest rates are hedged with interest rate swaps to effectively fix interest rates as discussed later in this
Note (7).
(2) On June 8, 2007, we gave notice to prepay $25 million of our $100 million, 5 year floating rate senior notes without
penalty. This prepayment was made on June 29, 2007. Concurrent with the notice to prepay, we amended a related
interest rate swap agreement, reducing the notional amount of the swap contracts from $100 million to $75 million.
The remaining interest rate swaps are considered highly effective and will continue to be accounted for as cash flow
hedges.
The fair market value at February 29, 2008 computed using discounted cash flow analysis was $15.38 million on the $15
million book value, fixed rate debt. All other long-term debt has floating interest rates, and its book value approximates
its fair value at February 29, 2008.
83
VERSION 7.0
NOTE 7 - LONG-TERM DEBT, CONTINUED
On September 28, 2006, we entered into interest rate hedge agreements in conjunction with our unsecured floating interest
rate $100 million, 5 year; $50 million, 7 year; and $75 million, 10 year senior notes (the “swaps”). The swaps are a hedge
of the variable LIBOR rates used to reset the floating rates on the senior notes.
The swaps effectively fix the interest rates on the 5, 7 and 10 year senior notes at 5.89, 5.89 and 6.01 percent, respectively,
beginning September 29, 2006. Under our swaps, we agree with another party to exchange the difference between fixed-
rate and floating-rate interest amounts calculated by reference to notional amounts that perfectly match our underlying
debt on a quarterly basis. Under these swap agreements, we pay the fixed rates and receive the floating rates. The swaps
settle quarterly and terminate upon maturity of the related debt. The swaps are considered cash flow hedges because they
are intended to hedge, and are effective as a hedge, against variable cash flows.
All of our long-term debt is guaranteed by the parent company, Helen of Troy Limited, and/or certain subsidiaries on a
joint and several basis. The debt requires the maintenance of certain Debt/EBITDA ratios and fixed charge coverage
ratios, specifies minimum consolidated net worth levels and contains other customary covenants. Certain covenants as of
the latest balance sheet date, limit our total outstanding indebtedness from all sources to no more than 3.5 times the latest
twelve months trailing EBITDA. As of February 29, 2008, these covenants effectively limited our ability to incur no
more than $123,991 of additional debt from all sources, including draws on our Revolving Line of Credit facility.
Additionally, our debt agreements restrict us from incurring liens on any of our properties, except under certain
conditions. As of February 29, 2008, we are in compliance with all the terms of these agreements.
The following table contains a summary of the components of our interest expense for the periods covered by our
consolidated statements of income:
INTEREST EXPENSE
(in thousands)
Interest and commitment fees
Deferred finance costs
Interest rate swap settlements, net
Reduction of debt and revolving credit agreement commitment
Total interest expense
Years Ended The Last Day of February,
2007
2006
2008
$
$
$
14,633
628
(355)
119
15,025
17,388
811
(287)
-
17,912
16,084
782
-
-
16,866
$
$
$
The line entitled “Reduction of debt and revolving credit agreement commitment” includes the write off of $282 of
unamortized deferred finance fees incurred in connection with the prepayment of long-term debt and the reduction of the
commitments under our Revolving Line of Credit Agreement, offset by a gain of $163 upon the liquidation of our position
in $25 million of associated interest rate swaps.
84
NOTE 8 - INCOME TAXES
Our components of earnings before income tax expense are as follows:
VERSION 7.0
Years Ended Last Day of February,
(in thousands)
2007
2006
2008
U.S.
Non-U.S.
Total
Our components of income tax expense (benefit) are as follows:
$
$
$
17,986
43,287
61,273
9,298
45,849
55,147
7,045
48,757
55,802
$
$
$
Years Ended Last Day of February,
(in thousands)
2007
2006
2008
U.S.
Current
Deferred
Non-U.S.
Current
Deferred
Total
$
6,459
(619)
5,840
$
3,910
(296)
3,614
$
2,481
2,876
5,357
(6,026)
(50)
(6,076)
(236)
$
1,589
(143)
1,446
5,060
$
1,869
(734)
1,135
6,492
$
Our total income tax expense differs from the amounts computed by applying the statutory tax rate to earnings before
income taxes. The reasons for these differences are as follows:
Years Ended Last Day of February,
(in thousands)
2007
2006
2008
Expected tax expense at the U.S. statutory rate of 35%
Impact of U.S. state income taxes
Decrease in income taxes resulting from income from non-U.S. operations
subject to varying income tax rates
Effect of zero tax rate in Macau
Reversal of prior accruals as a result of final tax audit settlements
Repatriation of prior years' foreign earnings
Actual tax expense (effective rates)
35.0%
1.5
(7.9)
(13.7)
(15.3)
-
-0.4%
35.0%
0.7
(11.2)
(15.3)
-
-
9.2%
35.0%
0.2
(13.3)
(15.3)
-
5.0
11.6%
On February 22, 2006, the Board of Directors of a subsidiary of the Company approved the repatriation, pursuant to The
American Jobs Creation Act of 2004, of $48,554 in foreign earnings. As a result, we incurred a one-time tax charge of
$2,792 in the fourth quarter of fiscal 2006.
85
NOTE 8 - INCOME TAXES, CONTINUED
In addition to certain of the items noted in the previous table, each year there are significant transactions that are
incidental to our core businesses and that by a combination of their nature and jurisdiction, can have a disproportionate
impact on our reported effective tax rates. Without these transactions, the trend in our effective tax rates would follow a
more normalized pattern. The following table shows the comparative impact of these items on our pretax earnings, tax
expense and effective tax rates, for each of the years covered by this report:
IMPACT OF SIGNIFICANT ITEMS ON PRETAX EARNINGS, TAX EXPENSE AND EFFECTIVE TAX RATES
(dollars in thousands)
VERSION 7.0
Tax benefit from HK IRD Settlement, including interest
income and reversal of penalties
Tax benefit from IRS settlement, including interest and
penalties
Net operating loss valuation allowance
Impairment loss
Loss on bankruptcy settlement
Gain on sale of land (2008 and 2007) and facilities (2006)
3,609
1,364
Gain on litigation settlements
Tax impact of repatriation of prior year's foreign earnings
104
-
2
-
2008 - Increase (Decrease)
Effective
Tax
Earnings Expense Tax Rates
Pretax
-
-
(7,950)
-12.7%
(1,363)
-2.2%
977
1.6%
(4,983)
(100)
-0.2%
-
-
Years Ended Last Day of February
2007 - Increase (Decrease)
Tax
Effective
Expense Tax Rates
Pretax
Earnings
2006 - Increase (Decrease)
Tax
Effective
Expense Tax Rates
Pretax
Earnings
-
-
-
-
-
422
450
-
(192)
-1.1%
-
-
-
-
143
9
-
0.0%
0.0%
0.0%
0.0%
0.8%
0.1%
0.0%
-
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
0.0%
(1,550)
(527)
-0.9%
1,304
400
-
443
8
2,792
0.8%
0.0%
5.0%
0.0%
2.2%
0.0%
0.0%
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 2008 and 2007 are as follows:
Deferred tax assets:
Net operating loss carryforwards
Accounts receivable
Inventories, principally due to additional
cost of inventories for tax purposes
Write down of marketable securities
Accrued expenses and other
Foreign currency contracts and interest rate swaps
Total gross deferred tax assets
Valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Net deferred tax asset
Last Day of February,
(in thousands)
2008
2007
$
6,018
1,807
$
5,826
1,203
7,827
7
5,835
4,290
25,784
6,386
1,020
4,993
757
20,185
(2,960)
(1,708)
(6,815)
16,009
$
(6,671)
11,806
$
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion of all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. We
consider the scheduled reversal of deferred tax liabilities, expected future taxable income and tax planning strategies in
making this assessment. In fiscal 2008, we increased our valuation allowance by $1,252, principally due to additional net
operating loss carryforwards in certain tax jurisdictions whose benefits we believe we will not be able to utilize.
86
NOTE 8 - INCOME TAXES, CONTINUED
The schedule below shows the composition of our net operating loss carryforwards and the approximate future taxable
income we will need to generate in order to utilize all carryforwards prior to their expiration.
VERSION 7.0
U.S. net operating loss carryforwards
Non-U.S. net operating loss carryforwards with definite
carryover periods
Non-U.S. net operating loss carryforwards with indefinite
carryover periods
Subtotals
Less portion of valuation allowance established for net
operating loss carryforwards
Total
At February 29, 2008
(in thousands)
Expiration
Date Range
(Where Applicable)
Gross
Deferred Tax
Assets
Required
Future Taxable
Income
2019 - 2027
$
2,388
$
6,998
2008 - 2016
Indefinite
30
3,600
6,018
1,199
12,122
20,319
$
(2,451)
3,567
$
(9,295)
11,024
As of February 29, 2008, subject to the valuation allowances provided, we believe it is more likely than not that we will
realize the benefits of these deductible differences. Any future amount of deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future taxable income during any carryforward periods are
reduced.
Hong Kong Income Taxes – On May 10, 2006, the Inland Revenue Department (the “IRD”) of Hong Kong and the
Company reached a settlement regarding tax liabilities for the fiscal years 1995 through 1997. This agreement was
subsequently approved by the IRD’s Board of Review. For those tax years, we agreed to an assessment of approximately
$4,019 including estimated penalties and interest. Our consolidated financial statements at May 31, 2006 and February
28, 2006 included adequate provisions for this liability. As a result of this tax settlement, in the first quarter of fiscal
2007, we reversed $192 of tax provision previously established and recorded $279 of associated interest. During the
second quarter of fiscal 2007, the liability was paid with $3,282 of tax reserve certificates and the balance in cash. Tax
reserve certificates represent the prepayment by a taxpayer of potential tax liabilities. The amounts paid for such
certificates are refundable in the event that the value of the tax reserve certificates exceeds the related tax liability.
For the fiscal years 1998 through 2003, the IRD had previously assessed a total of $25,461 in tax on certain profits of our
foreign subsidiaries. In connection with the IRD's tax assessment for the fiscal years 1998 through 2003, we had
purchased tax reserve certificates from Hong Kong totaling $25,144.
On August 24, 2007, the IRD and the Company reached a settlement regarding tax liabilities for fiscal years 1998 through
2003. Concurrent with these settlement negotiations, we reached an agreement regarding fiscal years 2004 and 2005, for
which we had not previously been assessed a tax liability. The amounts due related to the tax settlement for years 1998
through 2003, and the agreement for years 2004 and 2005, were settled with previously acquired tax reserve certificates.
We received a cash refund, including interest, of approximately $4,539. During fiscal 2008, in connection with the
settlement, we:
•
•
reversed $5,411 representing a portion of the tax provision previously established for those years and recorded
$199 of interest income related to tax reserve certificates in excess of the settlement amount; and
reversed $1,943 of a tax provision and $397 of estimated penalties established for this jurisdiction for future years
ending after fiscal 2005, on the basis of the settlement for previous years.
87
VERSION 7.0
NOTE 8 - INCOME TAXES, CONTINUED
Effective March 2005, we had concluded the conduct of all operating activities in Hong Kong that we believe were the
basis of the IRD’s assessments. Over the course of the prior year, the Company had moved these activities to China and
Macao. The Company established a Macao offshore company (“MOC”) and began operating from Macao in the third
quarter of fiscal 2005. As a MOC, we have been granted an indefinite tax holiday and pay no taxes.
United States Income Taxes – The IRS recently completed its audit of our U.S. consolidated federal tax returns for fiscal
years 2003 and 2004. We previously disclosed that the IRS provided notice of proposed adjustments to taxes of $5,953
to taxes for the years under audit. In April 2008, we resolved all outstanding tax issues which resulted in no adjustments
to either year. As a result of the settlement, we reversed $3,684 representing a portion of the tax provisions, including
interest and penalties previously established for those years. Of the $3,684, $1,363 was credited to the current year’s tax
provision and $2,321 was credited to additional paid-in-capital. The amount credited to additional paid-in-capital was for
the tax effects of prior year stock compensation expense that was allowed as a result of the audit.
The IRS is currently examining the U.S. consolidated federal tax return for fiscal year 2005. On March 31, 2008, the IRS
provided notice of a proposed adjustment of $7,750 to taxes for the year under audit. The Company is vigorously
contesting this adjustment. To date, this is the only adjustment that has been proposed, however the audit has not yet been
concluded. Although the ultimate outcome of the dispute with the IRS cannot be predicted with certainty, management is
of the opinion that an adequate provision for taxes for fiscal 2005 has been made in our consolidated financial statements.
Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments must be used in the calculation of certain tax assets and liabilities
because of 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 U.S. If such income were subject to U.S. federal income taxes, our effective income tax
rate would increase materially. The American Jobs Creation Act of 2004 (the “AJCA”), included an anti-inversion
provision that denies certain tax benefits to companies that have reincorporated outside the U.S. after March 4, 2003. We
completed our reincorporation in 1994; therefore, our transaction is grandfathered by the AJCA, and we expect to
continue to benefit from our current structure.
In addition to future changes in tax laws, our 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 shares) together own more than 50 percent of
the shares in such corporation. If a change of ownership 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
our business.
Uncertainty in Income Taxes – The calculation of our tax liabilities involves dealing with uncertainties in the application
of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. 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 not probable, 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.
88
VERSION 7.0
NOTE 8 - INCOME TAXES, CONTINUED
Effective March 1, 2007, we adopted FIN 48, which provides guidance for the recognition, derecognition and
measurement in financial statements of tax positions taken in previously filed tax returns or tax positions expected to be
taken in tax returns. FIN 48 requires an entity to recognize the financial statement impact of a tax position when it is more
likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not
recognition threshold, the tax effect is recognized at the largest amount of the benefit that has greater than a fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance for classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN 48 requires that a liability created for
unrecognized tax benefits must be disclosed as a separate liability that has not been combined with other deferred tax
liabilities or assets.
Upon adopting FIN 48, we recorded a $12,055 increase in the liability for unrecognized tax benefits (including interest
and penalties), and corresponding reductions to retained earnings and additional paid-in-capital in the amounts of $5,911
and $6,144, respectively. Amounts charged against additional paid-in-capital were due to the tax effect of stock
compensation expense that were originally recorded as an increase to paid-in-capital.
Upon adoption of FIN 48, we had approximately $39,387 of total gross unrecognized tax benefits, of which
approximately $32,913 would impact the effective tax rate, if recognized. With the adoption of FIN 48, we recognize
interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. Included in our total
gross unrecognized tax benefits we had approximately $4,783 accrued for penalties and $307 accrued for interest, net of
tax benefits. We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions.
As of February 29, 2008, tax years under examination or still subject to examination by major tax jurisdictions, for our
most significant subsidiaries were as follows:
Jurisdiction
Examinations in Process
Open Years
Hong Kong
Mexico
United Kingdom
United States
- None -
- None -
2005
2005
2006
2003
2006
2006
-
-
-
-
2008
2007
2008
2008
During fiscal 2008, changes in the total amount of unrecognized tax benefits was as follows:
UNRECOGNIZED TAX BENEFITS
(in thousands)
March 1, 2007 (after adoption of FIN 48)
Tax positions taken during the current year
Changes in tax positions taken during a prior year
Changes due to settlements and agreements with tax authorities
February 29, 2008
$
39,387
1,427
607
(32,240)
9,181
$
When there is uncertainty in a tax position taken or expected to be taken in a tax return, FIN 48 requires a liability to be
recorded for the amount of the position that could be challenged and overturned through any combination of audit, appeals
or litigation process. This amount is determined through criteria and a methodology prescribed by FIN 48 and is referred
to as an “Unrecognized Tax Benefit.”
We believe that it is reasonably possible that the total amount of unrecognized tax benefits may materially change during
the next twelve months due to certain issues pending settlement with the IRS. Depending on the outcome of the
settlement, the Company estimates that the impact on the Company’s ultimate tax liability could range from a $5,796
decrease to a $8,694 increase.
89
VERSION 7.0
NOTE 9 – SHARE-BASED COMPENSATION PLANS
We have equity awards outstanding under three share-based compensation plans. The plans consist of an employee stock
option and restricted stock plan adopted in 1998 (the “1998 Plan”), a non-employee director stock option plan adopted in
1996 (the “Directors Plan”) , and an employee stock purchase plan adopted in 1998 (the “Stock Puchase Plan”). These
plans are described below. The plans are generally administered by the Compensation Committee of the Board of
Directors, consisting of non-employee independent directors. During fiscal 2008, the last stock options outstanding under
a prior stock option and restricted stock plan (previously referred to as the “1994 Plan”) were exercised, and thus the plan
is no longer in effect.
Effective March 1, 2006, we adopted SFAS 123R, utilizing the modified prospective method whereby prior periods will
not be restated for comparability. SFAS 123R requires recognition of share-based compensation expense in the statements
of income over the vesting period based on the fair value of the award at the grant date. Previously, the Company used
the intrinsic value method under APB 25, as amended by related interpretations of the FASB. Under APB 25, no
compensation cost was recognized for stock options because the quoted market price of the stock at the grant date was
equal to or less than the amount per share the employee had to pay to acquire the stock after fulfilling the vesting period.
SFAS 123R supersedes APB 25 as well as SFAS 123, which permitted pro forma footnote disclosures to report the
difference between the fair value method and the intrinsic value method.
Under the 1998 Plan, we have reserved a total of 6,750,000 common shares for issuance to key officers and employees.
The plan provides for the grant of options to purchase our common shares at a price equal to or greater than the fair
market value on the grant date. The plan contains provisions for incentive stock options, non-qualified stock options and
restricted share grants. Generally, options granted under the 1998 Plan become exercisable immediately or over one, four,
or five-year vesting periods and expire on dates ranging from seven to ten years from the date of grant. As of February
29, 2008, 246,786 shares remained available for issue and options to purchase 5,587,183 shares of stock were outstanding
under this plan. The 1998 Plan will expire by its terms on August 25, 2008.
Under the Directors’ Plan, we reserved a total of 980,000 of our common shares for issuance to non-employee members
of the Board of Directors. We granted options under the Directors' Plan at a price equal to the fair market value of our
common shares at the date of grant. Options granted under the Directors' Plan vest one year from the date of issuance and
expire ten years after issuance. The Directors’ Plan expired by its terms on June 6, 2005. As of February 29, 2008, options
to purchase 236,000 shares of stock were outstanding under this plan.
Under the Stock Purchase Plan, we have reserved a total of 500,000 common shares 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 up to 15 percent of their wages or salaries to purchase our common shares. The purchase price for shares acquired
under the Stock Purchase Plan is equal to the lower of 85 percent of the share’s fair market value on either the first day of
each option period or the last day of each period. During the second and fourth quarters of fiscal 2008, plan participants
acquired 10,742 and 16,272 shares, respectively, at a price of $19.41 and $13.85 per share, respectively, under the Stock
Purchase Plan. At February 29, 2008, 280,372 shares remained available for future issue under this plan. The Stock
Purchase Plan will expire by its terms on July 17, 2008.
90
NOTE 9 - SHARE-BASED COMPENSATION PLANS, CONTINUED
For the fiscal years ending February 29, 2008 and February 28, 2007, the Company expensed $1,162 and $693 pretax,
respectively, for stock options issued and employee share purchases under the above plans. These amounts were
classified in selling, general, and administrative expense (“SG&A”) in the consolidated statements of income. The
following table highlights the impact of share based compensation expense:
VERSION 7.0
SHARE BASED PAYMENT EXPENSE
(in thousands, except per share data)
Stock options
Employee stock purchase plan
Share-based payment expense
Less income tax benefits
Share-based payment expense, net of income tax benefits
Earnings per share impact of share-based payment expense:
Basic
Diluted
Years Ended Last Day of February,
2008
2007
2006 (1)
$
$
1,007
155
1,162
(192)
970
595
98
693
(196)
497
-
$
-
-
-
$
-
$
$
$
$
0.03
0.03
$
$
0.02
0.02
$
-
$
-
(1) 2006 amounts are before adoption of SFAS 123R under the modified prospective method. Under this method, periods
prior to adoption are not restated.
The following table provides the pro forma effect on net earnings and earnings per share as if the fair-value-based
measurement method had been applied to all stock-based compensation for fiscal 2006:
PRO FORMA NET INCOME AND PRO FORMA EARNINGS PER SHARE
(in thousands, except per share data)
Net income:
As reported
Less fair-value cost of options with original vesting schedules
Add income tax benefits on non-accelerated options
Less fair-value cost of options where original vesting schedules were accelerated on
February 24, 2006
Add income tax benefits on accelerated options
Pro forma
Basic earnings per share:
As reported
Pro forma
Diluted earnings per share:
As reported
Pro forma
Year Ended
February 28, 2006
$
49,310
(2,751)
800
(1,641)
460
46,178
$
$
1.65
1.54
$
1.56
1.46
On February 24, 2006, the Compensation Committee of our Board of Directors approved the immediate acceleration of
vesting of unvested and "out-of-the money" stock options previously awarded to officers and employees with option
exercise prices greater than $19.65. The affected options held by officers and employees had a range of exercise prices
between $20.35 and $33.88, with a weighted average exercise price of $24.79. Vesting of options exercisable for a total
of 285,217 shares was accelerated. The closing price per share of our common shares on February 24, 2006 was $19.65.
91
VERSION 7.0
NOTE 9 - SHARE-BASED COMPENSATION PLANS, CONTINUED
Except for the vesting change, all affected stock options continued to be governed by their respective original terms and
conditions. At the time they were accelerated, these options represented 4.1 percent of the total of all outstanding options
for the purchase of the Company’s common stock.
We took this action in order to reduce the future compensation expense associated with unvested stock options following
the adoption of SFAS No.123R. As a result of the acceleration, we estimate that future stock option related compensation
expense that otherwise would have been required to be recorded in connection with the accelerated options will be
reduced by $1,641, on a pretax basis, over the original option remaining vesting periods.
The fair value of all share-based payment awards are estimated using a Black-Scholes option pricing model with the
following assumptions and weighted-average fair values for the fiscal years 2008, 2007 and 2006:
ASSUMPTIONS USED FOR FAIR VALUE OF STOCK OPTION GRANTS
Weighted-average risk-free interest rate
Dividend yield
Weighted-average expected volatility
Weighted-average expected life (in years)
Years Ended Last Day of February,
2008
2007
2006
4.6%
0.0%
38.1%
3.95
4.8%
0.0%
37.4%
4.52
3.6%
0.0%
41.6%
3.76
The following describes how certain assumptions affecting the estimated fair value of options or discounted employee
share purchases (“share based payments”) are determined. The risk-free interest rate is based on U.S. Treasury securities
with maturities equal to the expected life of the share based payments. The dividend yield is computed as zero because
we have not historically paid dividends nor do we expect to at this time. Expected volatility is based on a weighted
average of the market implied volatility and historical volatility over the expected life of the underlying share-based
payments. We use our historic experience to estimate the expected life of each stock-option grant and also to estimate the
impact of exercise, forfeitures, termination and holding period behavior for fair value expensing purposes.
Employee share purchases vest immediately at the time of purchase. Accordingly, the fair value award associated with
their discounted purchase price is expensed at the time of purchase.
92
NOTE 9 - SHARE-BASED COMPENSATION PLANS, CONTINUED
A summary of option activity under all the Company’s share-based compensation plans follows:
SUMMARY OF OPTION ACTIVITY
(in thousands, except contractual term and per share data)
VERSION 7.0
Outstanding at February 28, 2005
Granted
Exercised
Forfeited / expired
Outstanding at February 28, 2006
Granted
Exercised
Forfeited / expired
Outstanding at February 28, 2007
Granted
Exercised
Forfeited / expired
Outstanding at February 29, 2008
6,846
306
(162)
(67)
6,923
131
(248)
(55)
6,751
324
(1,157)
(95)
5,823
$
Weighted
Average
Exercise
Price
(per share)
Options
$
Weighted
Average
Grant Date
Fair Value
(per share)
$
5.44
7.14
5.52
8.72
5.57
8.89
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
5.66
$
93,722
1,780
4.83
39,317
1,939
3.87
56,211
13,465
$
5.58
3.69
$
14,171
14.60
18.83
(11.16)
(23.21)
14.83
22.64
(12.46)
(21.25)
15.01
25.40
(15.80)
(20.60)
15.34
Exercisable at February 29, 2008
5,278
$
14.53
$
5.29
3.29
$
14,171
A summary of non-vested option activity and changes under all the Company’s share-based compensation plans follows:
NON-VESTED OPTION ACTIVITY
(in thousands, except per share data)
Weighted
Average
Grant Date
Fair Value
(per share)
Non-Vested
Options
Outstanding at February 28, 2005
Granted
Vested or forfeited
Outstanding at February 28, 2006
Granted
Vested or forfeited
Outstanding at February 28, 2007
Granted
Vested or forfeited
Outstanding at February 29, 2008
704
306
(581)
429
131
(216)
344
324
(123)
545
93
$
5.27
7.14
(5.52)
6.27
8.72
(5.94)
7.41
8.89
(7.01)
8.38
$
NOTE 9 - SHARE-BASED COMPENSATION PLANS, CONTINUED
A summary of our total unrecognized share-based compensation cost as of February 29, 2008 is as follows:
UNRECOGNIZED SHARE-BASED COMPENSATION EXPENSE
(in thousands, except weighted average expense period data)
VERSION 7.0
Weighted
Average
Remaining
Period of Expense
Recognition
(in months)
Unearned
Compensation
Stock options
$
3,563
42.6
The following table summarizes additional information about options outstanding at February 29, 2008:
SUMMARY OF OPTIONS OUTSTANDING AND EXERCISABLE
(actual number of shares)
Outstanding Stock Options
ISOs
Total
Non-Qs
Total
Directors' Plan
Total
Number of
Options
Price Range
(per share)
29,000
2,900
24,500
656,186
712,586
1,511,375
1,000,000
1,759,750
603,472
4,874,597
40,000
20,000
16,000
160,000
236,000
$
$
$
$
5.69
12.93
14.02
17.76
$
$
$
$
5.69
12.53
13.47
18.00
$
$
$
$
4.41
12.53
14.47
21.47
to
to
to
to
to
to
to
to
to
to
to
to
$
$
$
$
11.78
13.04
17.28
33.88
$
$
$
$
11.84
13.13
17.63
27.37
$
$
$
$
11.84
13.13
17.63
33.35
Weighted-
Average
Remaining
Contractual
Life (years)
Weighted-
Average
Exercise
Price
(per share)
Exercisable Stock Options
Weighted-
Average
Exercise
Price
(per share)
Number of
Options
$
$
3.41
1.93
2.84
6.47
6.20
3.33
4.19
1.70
5.89
3.23
3.06
4.36
3.13
6.48
5.49
$
$
$
$
10.19
13.01
14.55
23.60
22.70
9.90
12.83
15.33
22.01
13.96
8.24
12.89
15.49
26.51
21.51
29,000
2,900
21,500
241,015
294,415
1,511,375
1,000,000
1,759,750
476,176
4,747,301
40,000
20,000
16,000
160,000
236,000
$
$
$
$
10.19
13.01
14.17
24.36
22.11
9.90
12.83
15.33
21.74
13.72
8.24
12.89
15.49
26.51
21.51
$
$
NOTE 10 – OTHER COMMITMENTS AND CONTINGENCIES
Indemnity Agreements - 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 actions 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 consolidated financial
statements.
94
VERSION 7.0
NOTE 10 – OTHER COMMITMENTS AND CONTINGENCIES, CONTINUED
Employment Contracts - 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 day
for a new three-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, 2008 to February 28, 2011.
The aggregate commitment for future salaries pursuant to such contracts, at February 29, 2008, excluding incentive
compensation, was $4,334.
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, effective as of April 15, 2005 changing:
•
•
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
the period for severance payouts was reduced from five years to three years. The formula for
calculating the amount of the annual severance payments required by the agreement remains
unchanged.
International Trade - We purchase most of our appliances and a significant portion of other products that we sell from
unaffiliated manufacturers located in the Far East, mainly in the Peoples' Republic of China. 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 social, economic and political unrest. With rising labor costs, growing local inflation, the impact of
energy prices on transportation and a Renminbi that is appreciating against the U.S. Dollar, the advantage of China solely
as a low-cost, manufacturing market are diminishing and are exerting price pressure on our cost of goods sold. These
risks have not historically affected our operations. Additionally, we believe that we could obtain similar products from
facilities in other countries, if necessary, and have begun to explore expanding our sourcing alternatives in other countries.
However, the relocation of any production capacity could require substantial time and increased costs.
Customer Incentives - 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 other current liabilities," and in Note (6)
included in the lines entitled “Accrued sales returns, discounts and allowances,” and “Accrued advertising” and is based
on incentives applicable to sales up to the respective balance sheet dates.
Securities Class Action Litigation – An agreement in principle has been reached to settle the consolidated class action
lawsuits filed on behalf of purchasers of publicly traded securities of the Company against the Company, Gerald J. Rubin,
the Company’s Chairman of the Board, President and Chief Executive Officer, and Thomas J. Benson, the Company’s
Chief Financial Officer. In the consolidated action, the plaintiffs alleged violations of Sections 10(b) and 20(a) of the
Securities Exchange Act, and Rule 10b-5 thereunder. The class period stated in the complaint was October 12, 2004
through October 10, 2005. The lawsuit was brought in the United States District Court for the Western District of Texas.
The proposed settlement remains subject to a number of conditions, including court approval following notice to class
members. The court has scheduled a hearing for June 19, 2008, where it will consider approving the proposed settlement.
Under the proposed settlement, the lawsuit would be dismissed with prejudice in exchange for a cash payment of $4.5
million. The Company's insurance carrier will pay the settlement amount and the Company's remaining legal and related
fees associated with defending the lawsuit, because the Company has met its self-insured retention obligation. The
Company and the two officers of the Company named in the lawsuit continue to deny any and all allegations of
wrongdoing, and, if the settlement is approved, they will receive a full release of all claims. The Company cannot make
any assurances that the proposed settlement will be concluded or approved by the court.
95
VERSION 7.0
NOTE 10 – OTHER COMMITMENTS AND CONTINGENCIES, CONTINUED
Other Matters - 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.
Preference Shares and Anti-takeover Provisions - Under the terms of a Shareholders' Rights Plan approved by our Board
of Directors in fiscal year 1999, we declared a dividend of one preference share right ("right") for each outstanding share
of common shares. 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 shares 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 shares, 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 $0.01 per right. The rights associated with the acquiring person's shares of common shares
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.
Contractual Obligations and Commercial Commitments - Our contractual obligations and commercial commitments, as
of February 29, 2008, were:
PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF FEBRUARY
(in thousands)
Total
2009
1 year
2010
2 years
2011
3 years
2012
4 years
2013
5 years
After
5 years
Term debt - fixed rate
Term debt - floating rate (1)
Long-term incentive plan payouts
Interest on floating rate debt (1)
Interest on fixed rate debt
Open purchase orders
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
Other
Total contractual obligations (2)
$
$
$
$
$
$
15,000
200,000
4,233
44,255
2,579
87,672
50,575
61,795
11,554
2,578
111
480,352
3,000
-
2,044
11,870
950
87,672
3,669
7,910
1,745
2,578
111
121,549
3,000
75,000
1,349
8,925
733
-
6,718
6,814
1,418
-
-
103,957
3,000
-
840
7,453
516
-
6,032
6,288
1,186
-
-
25,315
3,000
50,000
-
5,489
299
-
5,514
6,451
957
-
-
71,710
3,000
-
-
4,508
81
-
4,859
6,484
904
-
-
19,836
$
-
75,000
-
6,010
-
-
23,783
27,848
5,344
-
-
137,985
$
$
$
$
$
$
$
(1) The future obligation for interest on our variable rate debt has historically been estimated assuming the rates in effect
as of the end of the latest fiscal quarter on which we are reporting. As mentioned above in Note (7) to these
consolidated financial statements, on September 28, 2006, the Company entered into interest rate hedge agreements in
conjunction with its unsecured floating interest rate $100 million, 5 year; $50 million, 7 year; and $75 million, 10 year
senior notes (the “swaps”). The swaps are a hedge of the variable LIBOR rates used to reset the floating rates on the
senior notes. The swaps effectively fix the interest rates on the 5, 7 and 10 year senior notes at 5.89, 5.89 and 6.01
percent, respectively, beginning September 29, 2006. Accordingly, the future interest obligations related to this debt
have been estimated using these rates.
(2) In addition to the contractual obligations and commercial commitments in the table above, as of February 29, 2008,
we have recorded $8,320 of net income tax liabilities, including provision for our uncertain tax positions. While we
expect to settle certain of these issues over the near term, we are unable to reliably estimate the timing of future
payments related to uncertain tax positions; therefore, we have excluded all tax liabilities from the table above.
96
VERSION 7.0
NOTE 10 – OTHER COMMITMENTS AND CONTINGENCIES, CONTINUED
We lease certain facilities, equipment and vehicles under operating leases, which expire at various dates through fiscal
2018. Certain of the leases contain escalation clauses and renewal or purchase options. Rent expense related to our
operating leases was $2,680, $4,619 and $2,818 for fiscal 2008, 2007 and 2006, respectively.
NOTE 11 - FOURTH QUARTER CHARGES/TRANSACTIONS
In April 2008, we resolved all outstanding tax issues in connection with audits of our U.S. consolidated federal tax returns
for fiscal years 2003 and 2004 which resulted in no adjustments to either year. As a result of the settlement, in the fourth
quarter of fiscal 2008, we reversed $3,684 representing the tax provisions, including interest and penalties previously
established for those years. Of the $3,684, $1,363 was credited to the current year’s tax provision and $2,321 was credited
to additional paid-in-capital. The amount credited to additional paid-in-capital was for the tax effects of prior year stock
compensation expense that was allowed as a result of the audit. Also in the fourth quarter, we increased our deferred tax
valuation allowance $977 to account for operating loss carryforwards in certain tax jurisdictions whose benefits we
believe we will not be able to utilize.
Our results for the fourth quarter of fiscal 2007 did not contain any transactions of a non-routine nature.
On February 24, 2006, the Board of Directors of a subsidiary of the Company approved the repatriation, pursuant to The
American Jobs Creation Act of 2004, of $48,554 in foreign earnings. As a result, we incurred a one-time tax charge of
$2,792 in the fourth quarter of fiscal 2006.
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data is as follows (in thousands, except per share amounts):
Fiscal 2008:
Net sales
Gross profit
Impairment charges
Gain on sale of land
Net earnings
Earnings per share
Basic
Diluted
Fiscal 2007:
Net sales
Gross profit
Net earnings
Earnings per share
Basic
Diluted
May
August
November
February
Total
$
140,170
$
157,924
$
210,348
$
144,106
$
652,548
60,018
68,226
-
-
-
-
10,117
18,253
0.33
0.32
0.60
0.56
90,068
4,983
(3,609)
22,842
0.74
0.73
63,383
281,695
-
-
10,297
0.34
0.33
4,983
(3,609)
61,509
2.01
1.93
$
130,441
$
147,172
$
213,437
$
143,882
$
634,932
57,941
6,679
0.22
0.21
66,668
10,874
0.36
0.35
91,477
22,813
0.76
0.72
63,294
9,721
0.32
0.30
279,380
50,087
1.66
1.58
97
NOTE 13 - SEGMENT INFORMATION
The following table contains segment information for fiscal years covered by our consolidated financial statements:
VERSION 7.0
FISCAL YEARS ENDED 2008, 2007 AND 2006
(in thousands)
2008
Net sales
Operating income
Identifiable assets
Capital, license, trademark and other intangible expenditures
Depreciation and amortization
2007
Net sales
Operating income
Identifiable assets
Capital, license, trademark and other intangible expenditures
Depreciation and amortization
2006
Net sales
Operating income
Identifiable assets
Capital, license, trademark and other intangible expenditures
Depreciation and amortization
Personal
Care
Housewares
Total
$
488,414
41,149
552,329
3,183
9,448
$
164,134
31,401
359,664
4,526
4,850
$
652,548
72,550
911,993
7,709
14,298
Personal
Care
Housewares
Total
$
497,824
42,530
554,295
4,912
9,430
$
137,108
27,886
351,977
2,483
4,871
$
634,932
70,416
906,272
7,395
14,301
Personal
Care
Housewares
Total
$
461,947
37,260
512,594
29,979
9,020
$
127,800
34,118
345,150
22,388
3,407
$
589,747
71,378
857,744
52,367
12,427
Our Personal Care segment’s products include hair dryers, straighteners, curling irons, hairsetters, women’s shavers,
mirrors, hot air brushes, home hair clippers and trimmers, paraffin baths, massage cushions, footbaths, body massagers,
brushes, combs, hair accessories, liquid hair styling products, men’s fragrances, men’s deodorants, foot powder, body
powder and skin care products. Our Housewares segment reports the operations of OXO International (“OXO”) whose
products include kitchen tools, cutlery, bar and wine accessories, household cleaning tools, food storage containers, tea
kettles, trash cans, storage and organization products, hand tools, gardening tools, kitchen mitts and trivets, barbeque tools
and rechargeable lighting products. We use outside manufacturers to produce our goods. Both our Personal Care and
Housewares segments sell their products primarily through mass merchandisers, drug chains, warehouse clubs, catalogs,
grocery stores and specialty stores. In addition, the Personal Care segment sells extensively through beauty supply
retailers and wholesalers.
Operating profit for each operating segment is computed based on net sales, less cost of goods sold and any SG&A
associated with the segment. The SG&A used to compute each segment's operating profit are comprised of SG&A
directly associated with the segment, plus overhead expenses that are allocable to the operating segment. In connection
with the acquisition of our Housewares segment, the seller agreed to perform certain operating functions for the segment
for a transitional period of time that ended February 28, 2006. For the fiscal year ended February 28, 2006, transition
charges of $11,241 were used to compute the Housewares segment’s operating income. The costs of these functions were
reflected in SG&A for the Housewares segment’s operating income. During the transitional period, we did not make an
allocation of our corporate overhead to Housewares.
98
VERSION 7.0
NOTE 13 - SEGMENT INFORMATION, CONTINUED
During the first quarter of fiscal 2007, we completed the transition of our Housewares segment’s operations to our internal
operating systems and our new distribution facility in Southaven, Mississippi. For the fiscal year ended February 28,
2007, we allocated expenses totaling $12,753 to the Housewares segment, some of which were previously absorbed by the
Personal Care segment.
In the fourth quarter of fiscal 2007, we completed the consolidation of our domestic appliance inventories into the
Southaven facility. During fiscal 2007, we conducted an evaluation of our shared cost allocation methodology given the
structural and process changes that were taking place in our operations, and changed our methodology in the first quarter
of fiscal 2008. We believe the new method better reflects the economics of our newly consolidated operations. The table
below summarizes and compares the expense allocations made to the Housewares segment over the last three fiscal years:
Housewares Segment Expense Allocation
(dollars in thousands)
Distribution and sourcing expense
Other operating and corporate overhead expense
Total allocated expenses
Expense allocation as a percentage of net sales:
Distribution and sourcing expense
Other operating and corporate overhead expense
Total allocated expenses
(New Method)
2008
(Prior Methods)
2007
2006
$
$
$
14,031
6,901
20,932
7,541
5,212
12,753
10,382
859
11,241
$
$
$
8.5%
4.2%
12.8%
5.5%
3.8%
9.3%
8.1%
0.7%
8.8%
Other items of income and expense, including income taxes, are not allocated to operating segments.
Our domestic and international net sales from third parties and long-lived assets for the years ended the last day of
February are as follows (in thousands):
Years Ended Last Day of February
2007
2006
2008
NET SALES FROM THIRD PARTIES:
United States
International
Total
LONG-LIVED ASSETS:
United States
Barbados
Other international
Total
$
$
$
$
$
$
505,817
146,731
652,548
123,624
391,851
754
516,229
511,786
123,146
634,932
131,933
374,798
26,323
533,054
487,620
102,127
589,747
138,294
366,535
41,741
546,570
$
$
$
$
$
$
In the table above, certain long-lived assets, principally intangible assets, have been reclassified for both fiscal 2007 and
2006 to conform to the current year’s presentation. The table now classifies assets based upon the country where legal
title is held, as opposed to where the intangible assets may be utilized.
Sales to our largest customer and its affiliates accounted for approximately 19, 21 and 22 percent of our net sales in fiscal
2008, 2007, and 2006, respectively. Sales to our second largest customer accounted for approximately 9, 9 and 10
percent of our net sales in fiscal 2008, 2007, and 2006, respectively. No other customers accounted for ten percent or
more of net sales during those fiscal years.
99
VERSION 7.0
NOTE 13 - SEGMENT INFORMATION, CONTINUED
Of our total sales to our largest customer and its affiliate, 86, 92 and 91 percent, were made within the U.S. during fiscal
2008, 2007, and 2006, respectively. All of our total sales to our second largest customer were made within the U.S.
during fiscal 2008, 2007, and 2006.
NOTE 14 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Foreign Currency Risk - Our functional currency is the U.S. Dollar. By operating internationally, we are subject to
foreign currency risk from transactions denominated in currencies other than the U.S. Dollar ("foreign currencies"). Such
transactions include sales, certain inventory purchases and operating expenses. As a result of such transactions, portions of
our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies. For the fiscal years
2008, 2007 and 2006, 16.8, 14.8, and 14.5 percent of our net sales were in foreign currencies. These sales were primarily
denominated in the Canadian Dollar, British Pound, Euro, Brazilian Real and the Mexican Peso. We make most of our
inventory purchases from the Far East and use 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. In these transactions, we execute a forward currency contract that will settle at the
end of a forecasted period. Because the size and terms of the forward contract are designed so that its fair market value
will move in the opposite direction and approximate magnitude of the underlying foreign currency’s forecasted exchange
gain or loss during the forecasted period, a hedging relationship is created. To the extent we forecast the expected foreign
currency cash flows from the date the forward contract is entered into until the date it will settle with reasonable accuracy,
we significantly lower or materially eliminate a particular currency’s exchange risk exposure over the life of the related
forward contract.
We enter into these type of agreements where we believe we have meaningful exposure to foreign currency exchange risk.
It is simply not practical for us to hedge all our exposures, nor are we able to project in any meaningful way the possible
effect and interplay of all foreign currency fluctuations on translated amounts or future earnings. This is due to our
constantly changing exposure to various currencies, the fact that each foreign currency reacts differently to the U.S.
Dollar, and the significant number of currencies involved.
For transactions designated as foreign currency 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” in our
consolidated balance sheets. 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.
Interest Rate Risk – Fluctuation in interest rates can cause variation in the amount of interest that we can earn on our
available cash, cash equivalents and temporary investments and the amount of interest expense we incur on any short-term
and long-term borrowings. Interest on our long-term debt outstanding as of February 29, 2008 is both floating and fixed.
Fixed rates are in place on $15 million of senior notes at 7.24 percent and floating rates are in place on $200 million of
debt which reset as described in Note (7) of these consolidated financial statements, but have been effectively converted to
fixed rate debt using the interest rate swaps described below.
During the third quarter of fiscal 2007, we decided to actively manage our floating rate debt using interest rate swaps (the
“swaps”). We entered into three interest rate swaps that converted an aggregate notional principal of $200 million from
100
VERSION 7.0
NOTE 14 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT, CONTINUED
floating interest rate payments under our 5, 7 and 10 year senior notes to fixed interest rate payments ranging from 5.89 to
6.01 percent. In these transactions, we executed three contracts to pay fixed rates of interest on an aggregate notional
principal amount of $200 million at rates ranging from 5.04 to 5.11 percent while simultaneously receiving floating rate
interest payments currently set at 4.83 percent as of February 29, 2008 on the same notional amount. The fixed rate side
of the swap will not change over the life of the swap. The floating rate payments are reset quarterly based on three month
LIBOR. The resets are concurrent with the interest payments made on the underlying debt. Changes in the spread
between the fixed rate payment side of the swap and the floating rate receipt side of the swap offset 100 percent of the
change in any period, of the underlying debt’s floating rate payments. These swaps are used to reduce the Company’s risk
of the possibility of increased interest costs; however, should interest rates continue to drop significantly, we could also
lose the benefit that floating rate debt can provide in a declining interest rate environment. The swaps are considered 100
percent effective. Gains and losses related to the swaps, net of related tax effects are reported as a component of
“Accumulated other comprehensive income” and will not be reclassified into earnings until the conclusion of the hedge.
A partial net settlement occurs quarterly concurrent with interest payments made on the underlying debt. The settlement
is the net difference between the fixed rates payable and the floating rates receivable over the quarter under the swap
contracts. The settlement is recognized as a component of "Interest expense" in the consolidated statements of income.
The following table summarizes the various forward contracts and interest rate swap contracts that we designated as cash
flow hedges and were open at the end of fiscal 2008 and 2007:
CASH FLOW HEDGES
February 29, 2008
Range of Maturities
Contract
Type
Currency
to Deliver
Notional
Amount
Contract Date
From
To
Spot Rate at
Contract Date
Spot Rate at
Feb. 29, 2008
Weighted
Average
Forward Rate
at Inception
Weighted
Average
Forward Rate
at Feb 29,
2008
Market Value
of the
Contract in
U.S. Dollars
(Thousands)
Foreign Currency Contracts
Sell
Sell
Subtotal
Pounds
Pounds
£5,000,000
£5,000,000
11/28/2006
4/17/2007
12/11/2008
2/17/2009
1/15/2009
8/17/2009
1.9385
2.0000
1.9885
1.9885
1.9242
1.9644
1.9440
1.9281
Interest Rate Swap Contracts
Swap
Swap
Swap
Subtotal
Dollars
Dollars
Dollars
$75,000,000
$50,000,000
$75,000,000
9/28/2006
9/28/2006
9/28/2006
6/29/2009
6/29/2011
6/29/2014
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.11%, receive floating 3-month LIBOR rate)
Fair Value of Cash Flow Hedges
($99)
$182
$83
($2,506)
($3,462)
($6,481)
($12,449)
($12,366)
February 28, 2007
Range of Maturities
Contract Date
From
To
Spot Rate at
Contract Date
Spot Rate at
Feb. 28, 2007
Weighted
Average
Forward Rate
at Inception
Weighted
Average
Forward Rate
at Feb 28,
2007
Market Value
of the
Contract in
U.S. Dollars
(Thousands)
Contract
Type
Currency
to Deliver
Notional
Amount
Foreign Currency Contracts
Sell
Sell
Subtotal
Pounds
Pounds
£10,000,000
£5,000,000
5/12/2006
11/28/2006
12/14/2007
12/11/2008
2/14/2008
1/15/2009
1.8940
1.9385
1.9636
1.9636
1.9010
1.9242
1.9543
1.9408
Interest Rate Swap Contracts
Swap
Swap
Swap
Subtotal
Dollars
Dollars
Dollars
$100,000,000
$50,000,000
$75,000,000
9/28/2006
9/28/2006
9/28/2006
6/29/2009
6/29/2011
6/29/2014
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.04%, receive floating 3-month LIBOR rate)
(Pay fixed rate at 5.11%, receive floating 3-month LIBOR rate)
Fair Value of Cash Flow Hedges
($533)
($83)
($616)
($326)
($342)
($833)
($1,501)
($2,117)
101
VERSION 7.0
NOTE 14 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT, CONTINUED
Counterparty Credit Risk - Financial instruments, including foreign currency contracts and interest rate swaps, expose us
to counterparty credit risk for nonperformance. We manage our exposure to counterparty credit risk through only dealing
with counterparties who are substantial international financial institutions with significant experience using such
derivative instruments. Although our theoretical credit risk is the replacement cost at the then estimated fair value of
these instruments, we believe that the risk of incurring credit risk losses is remote.
Risks Inherent in Cash, Cash Equivalents and Temporary Investment Holdings – Our cash, cash equivalents and
temporary investments are subject to interest rate risk, credit risk and liquidity risk. Cash consists of both interest bearing
and non-interest bearing operating disbursement accounts. Cash equivalents consist of commercial paper and money
market investment accounts. Temporary investments consist of AAA auction rate notes, AAA variable rate demand
bonds and similar investments that we normally seek to dispose of within 35 or fewer days (“auction rate securities”).
The following table summarizes the cash, cash equivalents and temporary investments we held at the end of fiscal 2008
and 2007:
CASH, CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
(in thousands)
Last Day of February
2008
2007
Carrying
Amount
Range of
Interest Rates
Carrying
Amount
Range of
Interest Rates
Cash and cash equivalents
Cash held in interest and non interest-bearing operating accounts - unrestricted
Cash held in non interest-bearing operating accounts - restricted
Commercial paper
Money market accounts
Total cash and cash equivalents
$
$
0.0 to 5.40%
-
3.15 to 3.19%
2.00 to 6.00%
6,871
701
1,785
48,493
57,850
2,988
485
30,490
1,492
35,455
0.00 to 3.5%
-
5.22 to 5.32%
1.83 to 6.00%
$
$
Temporary investments
Auction rate securities - collateralized by student loans
$
63,825
4.50 to 9.90%
$
55,750
5.28 to 5.33%
Most of our cash equivalents and temporary investments are in money market accounts, commercial paper and auction
rate securities with frequent rate resets, therefore we believe there is no material interest rate risk. In addition, our
commercial paper and auction rate securities are purchased from issuers with high credit ratings, therefore we believe the
credit risk is low.
At February 29, 2008, all of our temporary investments were auction rate notes collateralized by student loans (with
underlying maturities from 21 to 40 years). Approximately 94 percent of such collateral in the aggregate was guaranteed
by the U.S. government under the Federal Family Education Loan Program. Approximately 5 percent of the collateral in
the aggregate was backed by private financial guarantee insurance. Liquidity for these securities is normally dependent
on an auction process that resets the applicable interest rate at pre-determined intervals, ranging from 7 to 35 days. An
auction fails when there is insufficient demand. However, this does not represent a default by the issuer of the security.
Upon an auction failure, the interest rates reset based on a formula contained in the security and this rate is generally
higher than the current market rate.
Recent credit concerns in the capital markets have significantly reduced our ability to liquidate our auction rate securities.
At this time, there is a very limited demand for these securities and limited acceptable alternatives to liquidate such
securities. Between February 29, 2008 and May 10, 2008, we have been able to liquidate $3,300 of these securities with
no gain or loss. Each of the remaining securities in our portfolio has been subject to one or more failed auctions. Based
on current market conditions, it is likely that auctions of our remaining holdings in these securities may be unsuccessful in
the near term, resulting in us continuing to hold securities beyond their next scheduled auction reset dates and limiting the
short-term liquidity of these investments.
102
VERSION 7.0
NOTE 14 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT, CONTINUED
While these failures in the auction process have affected our ability to access these funds in the near term, based on the
related information currently at hand, we do not believe that any of these securities are impaired. If the issuers or dealers
are unable to successfully close future auctions, their credit ratings deteriorate, or the credit insurer’s credit ratings
deteriorate, the Company may be required to record an impairment charge on these investments in the future.
Because we intend to reduce these holdings as soon as practicable and believe we will be able to within the next 12
months, we believe that the consolidated balance sheet classification of our holdings in these securities as “Temporary
investments” under current assets continues to be appropriate.
Our cash balances at February 29, 2008 and February 28, 2007 include restricted cash of $701 and $485, respectively,
denominated in Venezuelan bolivars, shown above under the heading “Cash held in non interest-bearing operating
accounts – restricted.” The balances are primarily a result of favorable operating cash flows within the Venezuelan
market. Due to current Venezuelan government restrictions on transfers of cash out of the country and control of exchange
rates, the Company cannot repatriate this cash at this time.
NOTE 15 - NON-MONETARY TRANSACTIONS
We occasionally enter into barter transactions in which we exchange inventory for various services, usually advertising.
During fiscal 2005, we entered into two such transactions in which we exchanged inventory with a book value of $1,011
for certain 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. As of February 28, 2006, all credits from the
non-monetary transactions had been utilized. We used $915 of barter related advertising credits during fiscal 2006.
NOTE 16 –TACTICA INTERNATIONAL, INC. BANKRUPTCY SETTLEMENT
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 of its secured debt and
accrued interest owed to us, we received marketable securities, intellectual properties and the right to certain tax refunds.
On October 21, 2004, Tactica filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code. Early in the fourth quarter of fiscal 2006, The U.S. Bankruptcy Court for the Southern District of New
York approved Tactica’s bankruptcy reorganization plan, which among other things, required Helen of Troy to pay
Tactica’s unsecured creditors $1,800. The schedule below shows how the liability was liquidated out of sums that were
held in bankruptcy escrow:
TACTICA INTERNATIONAL, INC. BANKRUPTCY SETTLEMENT
(in thousands)
Funds due to the Company from escrow:
Income tax refund receivable
Interest income on income tax refund receivable
Reimbursements due from Tactica's former minority shareholders
Total
Less amounts to be paid to unsecured creditors
Net proceeds received from escrow
$
2,908
463
250
3,621
(1,800)
1,821
$
In connection with the above settlement, we recorded a net settlement loss of $1,550 on the Company’s books during
fiscal 2006 and it is included in the line item entitled “Other expense, net” in the consolidated statement of income. We
also incurred $378 of legal fees related to the Tactica bankruptcy during fiscal 2006. These legal fees were expensed as
incurred and included in the line entitled “Selling, general, and administrative expense” in the consolidated statement of
income.
103
VERSION 7.0
NOTE 17 - 401(k) DEFINED CONTRIBUTION PLANS
We sponsor defined contribution savings plans in the U.S. and other countries where we have employees. Total matching
contributions made to these savings plans for the fiscal years ended 2008, 2007 and 2006 were $707, $467 and $643,
respectively.
NOTE 18 – REPURCHASE OF HELEN OF TROY SHARES
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 common shares over an initial period extending through May
31, 2006. On April 25, 2006, our Board of Directors approved a resolution to extend the existing plan to May 31, 2009.
During the fiscal quarter ended August 31, 2007, a key employee tendered 728,500 common shares having a market value
of $20,271 as payment for the exercise price and related federal tax obligations arising from the exercise of options. We
accounted for this activity as a purchase and retirement of the shares at a $27.83 per share average price. For the fiscal
quarter ended November 30, 2007, we did not repurchase any common shares. During the fiscal quarter ended February
29, 2008, we purchased and retired an additional 366,892 common shares under this resolution at a total purchase price of
$5,731, for a $15.62 per share average price. From September 1, 2003 through February 29, 2008, we have repurchased
2,659,228 common shares at a total cost of $71,614, or an average price per share of $26.93. An additional 340,772
common shares remain authorized for purchase under this plan as of February 29, 2008.
NOTE 19 – SUBSEQUENT EVENTS (UNAUDITED)
On March 6, 2008, a fire at a third-party managed distribution facility in Vitoria, Brazil destroyed personal care products
inventory with a recorded value of $1,014. As a result, we expect to incur Personal Care segment sales disruptions in the
Brazilian market through the balance of the first quarter of fiscal 2009, but believe we can replace the inventories and
restore our ability to appropriately service sales in the second quarter of fiscal 2009. We expect the impact on our
quarterly and annual results in fiscal 2009 due to lost revenue and associated costs will be immaterial to our consolidated
operating results. We have filed claims with our casualty insurance carriers on this inventory. We currently expect the
settlement to be in excess of the carrying value of our inventory at the date of the fire, because our policy calls for
settlement at the retail sales value of the inventory lost, therefore no loss contingency has been provided for subsequent to,
February 29, 2008.
On May 2, 2008, Linens Holding Co., the operator of Linens ‘n Things retail chain (“Linens”) filed for protection under
chapter 11 of the U.S. Bankruptcy Code. As of February 29, 2008, we had $4,590 of accounts receivable outstanding from
Linens. We received our last payment on account from Linens on April 11, 2008, leaving us with accounts receivable due
from Linens of $4,112. The $4,112 balance consisted of $3,072 for sales originating on or before February 29, 2008 and
$1,040 for sales originating after February 29, 2008. All orders processed for Linens since April 11, 2008 have been on a
cash-in-advance basis. The Linens accounts receivable are unsecured, and the amount that the Company will ultimately
recover, if any, is not presently determinable. Although the Company maintains an allowance for doubtful accounts to
cover a customer’s inability to pay all or a portion of their accounts receivable, no additional specific reserve was
established as of February 29, 2008 for Linens. In addition, Linens is a significant customer of the Company with fiscal
2008 net sales of approximately $1,300 and $17,300, for our Personal Care and Housewares segments, respectively.
The Company historically has completed its analysis of the carrying value of our goodwill and other intangible assets and
our analysis of the remaining useful economic lives of our intangible assets other than goodwill during the first quarter of
each fiscal year. Our analyses are not yet complete, however, based upon preliminary work done to date, we expect to
recognize impairment charges during the first quarter of fiscal 2009 on certain identified indefinite-lived intangible assets
held by our Personal Care segment. We currently estimate that the charge will range between $7,000 and $10,000, and
will be recorded as a component of operating income in the Company’s income statement for the fiscal quarter ended May
31, 2008. These charges will reflect the amounts by which the carrying values of these assets exceed their estimated fair
values determined by their estimated future discounted cash flows.
104
VERSION 7.0
HELEN OF TROY LIMITED AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(in thousands)
Description
Year ended February 29, 2008
Allowance for accounts receivable
Year ended February 28, 2007
Allowance for accounts receivable
Year ended February 28, 2006
Allowance for accounts receivable
Additions
Balance at
Beginning
of Year
Charged to
cost and
expenses (1)
Charged to
revenues
Deductions (2)
Balance at
End of Year
$
1,002
$
1,411
$
-
$
1,082
$
1,331
$
850
$
586
$
-
$
434
$
1,002
$
2,167
$
648
$
-
$
1,965
$
850
(1) Represents periodic charges to the provision for doubtful accounts.
(2) Represents write offs of doubtful accounts net of recoveries of previously reserved amounts.
105
VERSION 7.0
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company began seeking proposals for audit services after KPMG LLP (“KPMG”) ceased maintaining an
office in El Paso, Texas, the headquarters of the Company’s U.S. operations. The Audit Committee of the Board of
Directors (the “Audit Committee”) of the Company evaluated and analyzed several proposals for such auditing services.
On May 15, 2007, the Audit Committee notified KPMG that it would not recommend that the Company’s shareholders
appoint KPMG as the Company’s independent auditor and registered public accounting firm, subject to the requirements
of Bermuda Law, at the next annual general meeting of shareholders. Bermuda company law provides that the
Company’s independent auditor may not be removed before the expiration of its term of office other than by the
Company’s shareholders acting at a general meeting at which general meeting the Company’s shareholders must appoint
another auditor for the remainder of its term of office. KPMG’s current term was scheduled to expire at the Company’s
annual general meeting proposed for August 2007. In order to facilitate the transition of audit services for fiscal year
2008, KPMG notified the Company on May 15, 2007 that they resigned as the independent auditor and registered public
accounting firm of the Company. KPMG’s resignation created a casual vacancy. Bermuda company law provides that in
the event of a casual vacancy in the position of auditor, the Company’s Audit Committee may appoint a new auditor to fill
such vacancy in accordance with the authority delegated to it by the Company’s Board of Directors.
During the Company’s two fiscal years ended February 28, 2007 and February 28, 2006, and subsequent interim
period through May 15, 2007, there were no disagreements between the Company and KPMG on any matter of
accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement if
not resolved to KPMG’s satisfaction, would have caused them to make reference in conjunction with their opinion to the
subject matter of the disagreement. There were also no reportable events as defined in Item 304(a)(1)(v) of Regulation S-
K.
The audit reports of KPMG on the consolidated financial statements of the Company and subsidiaries as of and
for the two fiscal years ended February 28, 2007 and February 28, 2006, did not contain an adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except as set forth
in the following sentence. KPMG’s report on the consolidated financial statements of the Company and subsidiaries as of
and for the years ended February 28, 2007 and February 28, 2006, contained a separate paragraph stating that “As
discussed in Note (9) to the consolidated financial statements, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment, effective March 1, 2006.”
The audit reports of KPMG on management’s assessment of effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting as of February 28, 2007 and February 28, 2006,
did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit
scope, or accounting principles.
On June 18, 2007, the Company engaged Grant Thornton LLP as the Company’s auditor and independent
registered public accounting firm to audit our consolidated financial statements for the fiscal year ending February 29,
2008. Our Audit Committee approved the appointment of Grant Thornton LLP.
106
VERSION 7.0
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Company’s management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act as of
February 29, 2008. Based upon that evaluation, our CEO and CFO 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.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management’s report 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, Financial Statements and
Supplementary Data” of this report on pages 60 through 61, and are incorporated herein by reference.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
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 29, 2008, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
107
PART III
VERSION 7.0
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information in our Proxy Statement is incorporated by reference in response to this Item 10, as noted below:
•
•
•
•
Information about our Directors who are standing for reelection is set forth under “Election of Directors”;
Information about our executive officers is set forth under “Executive Officers”;
Information about our Audit Committee, including members of the committee, and our designated “audit
committee financial experts” is set forth under “Corporate Governance, The Board, Board Committees and
Meetings”; and
Information about Section 16(a) beneficial ownership reporting compliance is set forth under “Section 16(a)
Beneficial Ownership Reporting Compliance.”
We have adopted a Code of Ethics governing our Chief Executive Officer, Chief Financial and Principal
Accounting Officer, and finance department members. The full text of our Code of Ethics is published on our website, at
www.hotus.com, under the “Investor Relations-Corporate Governance” caption. We intend to disclose future
amendments to, or waivers from, certain provisions of this Code on our website or in a current report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the captions “Director Compensation”; “Executive Compensation”; and
“Compensation Discussion and Analysis” in our Proxy Statement is incorporated by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Information set forth under the captions “Security Ownership of Certain Beneficial Owners and Management”
and “Executive Compensation” in our Proxy Statement is incorporated by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information set forth under the captions “Certain Relationships and Related Transactions” and “Corporate
Governance, The Board, Board Committees and Meetings” in our Proxy Statement is incorporated by reference in
response to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information set forth under the caption “Audit and Other Fees Paid to our Independent Registered Public
Accounting Firm” in our Proxy Statement is incorporated by reference in response to this Item 14.
108
PART IV
VERSION 7.0
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
1.
2.
3.
Financial Statements: See "Index to Consolidated Financial Statements" under Item 8 on page 59 of
this report
Financial Statement Schedule: See "Schedule II" on page 105 of this report
Exhibits
The exhibit numbers succeeded by an asterisk (*) indicate exhibits physically filed with this Form 10-K. All other
exhibit numbers indicate exhibits filed by incorporation by reference. Exhibits succeeded by a cross (†) are
management contracts or compensatory plans or arrangements.
3.1
3.2
4.1
10.1†
10.2†
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12†
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")).
Bye-Laws, as Amended (incorporated by reference to Exhibit 3.2 to Helen of Troy Limited's Quarterly
Report on Form 10-Q for the period ending August 31, 2007, filed with the Securities and Exchange
Commission on October 10, 2007).
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).
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")).
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).
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).
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 Comb and Brush License Agreement, dated September 30, 1992
(incorporated by reference to Exhibit 10.27 to Helen of Troy Corporation’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year Ending February 28, 1993 (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).
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 filed with the Securities and Exchange Commission on January 14, 1997).
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 333-67369, filed with the
Securities and Exchange Commission on November 17, 1998).
109
VERSION 7.0
10.13†
10.14†
10.15
10.16†
10.17
10.18
10.19
10.20†
10.21
10.22†
10.23†
10.24†
10.25
10.26
21*
23.1*
23.2*
31.1*
31.2*
32*
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 filed with the Securities and Exchange Commission on
October 15, 1999 (the “August 1999 10-Q”)).
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).
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).
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”)).
Credit Agreement, dated 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 with the Securities and Exchange Commission on June 3, 2004).
Guaranty, dated 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 with the Securities and Exchange Commission 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 with the Securities and
Exchange Commission 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
with the Securities and Exchange Commission on April 26, 2005).
Second Amendment to Credit Agreement, dated as of September 23, 2005, among Helen of Troy L.P.,
Helen of Troy Limited, Bank of America, N.A. and other lenders party thereto (incorporated by reference to
Exhibit 10.1 of Helen of Troy Limited's Quarterly Report on Form 10-Q for the period ended November 30,
2005 filed with the Securities and Exchange Commission on January 19, 2006 (the “November 2005 10-
Q”).
Amended and Restated Helen of Troy Limited 1998 Stock Option and Restricted Stock Plan (incorporated
by reference to Appendix A of Helen of Troy Limited’s Definitive Proxy Statement on Schedule 14A, File
Number 001-14669, filed with the Securities and Exchange Commission on June 15, 2005).
Form of Helen of Troy Limited Nonstatutory Stock Option Agreement.
Form of Helen of Troy Limited Incentive Stock Option Agreement.
Third Amendment to Credit Agreement, dated as of November 15, 2005, among Helen of Troy L.P., Helen
of Troy Limited, Bank of America, N.A. and other lenders party thereto (incorporated by reference to
Exhibit 10.2 to the November 2005 10-Q).
First Amendment to Guarantee Agreement, dated as of November 15, 2005, among 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., OXO International Ltd. and Bank of America, N.A. (as
Guaranteed party) (incorporated by reference to Exhibit 10.3 to the November 2005 10-Q).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, Grant Thornton LLP.
Consent of Independent Registered Public Accounting Firm, KPMG LLP.
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.
Joint certification of the Chief Executive Officer and 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.
110
SIGNATURES
VERSION 7.0
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 12, 2008
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
Gerald J. Rubin
Chairman of the Board, Chief Executive Officer,
President, Director and Principal Executive Officer
May 12, 2008
/s/ Thomas J. Benson
Thomas J. Benson
Senior Vice President, Chief Financial Officer
May 12, 2008
/s/ Richard J. Oppenheim
Richard J. Oppenheim
Financial Controller and Principal Accounting
Officer
May 12, 2008
/s/ Stanlee N. Rubin
Stanlee N. Rubin
Director
May 12, 2008
/s/ Byron H. Rubin
Byron H. Rubin
Director
May 12, 2008
/s/ John B. Butterworth
John B. Butterworth
Director
May 12, 2008
/s/ Darren G. Woody
Darren G. Woody
Director
May 12, 2008
/s/ Gary B. Abromovitz
Gary B. Abromovitz
Director, Deputy Chairman of the Board
May 12, 2008
/s/ Adolpho R. Telles
Adolpho R. Telles
Director
May 12, 2008
/s/ Timothy F. Meeker
Timothy F. Meeker
Director
May 12, 2008
111
INDEX TO EXHIBITS
VERSION 7.0
The exhibit numbers succeeded by an asterisk (*) indicate exhibits physically filed with this Form 10-K. All other exhibit
numbers indicate exhibits filed by incorporation by reference. Exhibits succeeded by a cross (†) are management
contracts or compensatory plans or arrangements.
3.1
3.2
4.1
10.1†
10.2†
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12†
10.13†
10.14†
10.15
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")).
Bye-Laws, as Amended (incorporated by reference to Exhibit 3.2 to Helen of Troy Limited's Quarterly
Report on Form 10-Q for the period ending August 31, 2007, filed with the Securities and Exchange
Commission on October 10, 2007).
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).
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")).
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).
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).
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 Comb and Brush License Agreement, dated September 30, 1992
(incorporated by reference to Exhibit 10.27 to Helen of Troy Corporation’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year Ending February 28, 1993 (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).
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 filed with the Securities and Exchange Commission on January 14, 1997).
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 333-67369, filed with the
Securities and Exchange Commission on November 17, 1998).
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 filed with the Securities and Exchange Commission on
October 15, 1999 (the “August 1999 10-Q”)).
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).
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).
112
VERSION 7.0
10.16†
10.17
10.18
10.19
10.20†
10.21
10.22†
10.23†
10.24†
10.25
10.26
21*
23.1*
23.2*
31.1*
31.2*
32*
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”)).
Credit Agreement, dated 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 with the Securities and Exchange Commission on June 3, 2004).
Guaranty, dated 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 with the Securities and Exchange Commission 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 with the Securities and
Exchange Commission 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
with the Securities and Exchange Commission on April 26, 2005).
Second Amendment to Credit Agreement, dated as of September 23, 2005, among Helen of Troy L.P.,
Helen of Troy Limited, Bank of America, N.A. and other lenders party thereto (incorporated by reference to
Exhibit 10.1 of Helen of Troy Limited's Quarterly Report on Form 10-Q for the period ended November 30,
2005 filed with the Securities and Exchange Commission on January 19, 2006 (the “November 2005 10-
Q”).
Amended and Restated Helen of Troy Limited 1998 Stock Option and Restricted Stock Plan (incorporated
by reference to Appendix A of Helen of Troy Limited’s Definitive Proxy Statement on Schedule 14A, File
Number 001-14669, filed with the Securities and Exchange Commission on June 15, 2005).
Form of Helen of Troy Limited Nonstatutory Stock Option Agreement.
Form of Helen of Troy Limited Incentive Stock Option Agreement.
Third Amendment to Credit Agreement, dated as of November 15, 2005, among Helen of Troy L.P., Helen
of Troy Limited, Bank of America, N.A. and other lenders party thereto (incorporated by reference to
Exhibit 10.2 to the November 2005 10-Q).
First Amendment to Guarantee Agreement, dated as of November 15, 2005, among 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., OXO International Ltd. and Bank of America, N.A. (as
Guaranteed party) (incorporated by reference to Exhibit 10.3 to the November 2005 10-Q).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, Grant Thornton LLP.
Consent of Independent Registered Public Accounting Firm, KPMG LLP.
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.
Joint certification of the Chief Executive Officer and 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.
113
SUBSIDIARIES OF THE REGISTRANT
VERSION 7.0
EXHIBIT 21
Name
Incorporation
Doing Business as
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 Szolgaltato KFT
HOT (Jamaica) Limited
H.O.T. (Luxembourg) SARL
Helen of Troy Comercial Offshore de Macau Limitada Macau
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.
Idelle Labs, Ltd.
OXO International Ltd.
Helen of Troy International B.V.
HOT (UK) Limited
Fontelux Trading, S.A.
Helen of Troy Venezuela, S.A.
Texas Limited Partnership
Texas Limited Partnership
The Netherlands
United Kingdom
Uruguay
Venezuela
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, Helen of Troy,
Belson Products, and Fusion
Tools
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
114
VERSION 7.0
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Helen of Troy Limited:
We have issued our reports dated May 12, 2008 with respect to the consolidated financial statements, schedules
and internal control over financial reporting included in the Annual Report of Helen of Troy Limited on Form 10-K for
the year ended February 29, 2008. We hereby consent to the incorporation by reference of said reports in the Registration
Statements of Helen of Troy Limited on Form S-8 (File No. 333-11181, effective September 18, 1996; File No. 333-
67349, effective November 16, 1998; File No. 333-67369, effective November 17, 1998; File No. 333-90776, effective
June 19, 2002; File No. 333-103825, effective March 14, 2003; and File No. 333-128832, effective October 5, 2005).
/s/ GRANT THORNTON LLP
Dallas, Texas
May 12, 2008
115
VERSION 7.0
EXHIBIT 23.2
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. 333-11181, No. 333-67349, No.
333-67369, No. 333-90776, No. 333-103825, and No. 333-128832 on Form S-8, of Helen of Troy Limited and
subsidiaries of our report dated May 14, 2007, with respect to the consolidated balance sheet of Helen of Troy Limited
and subsidiaries as of February 28, 2007, and the related consolidated statements of income, shareholders’ equity and
comprehensive income, and cash flows and related financial statement schedule for each of the years in the two-year
period ended February 28, 2007, which report appears in the February 29, 2008 annual report on Form 10-K of Helen of
Troy Limited. Our report on the consolidated financial statements refers to a change in the Company’s accounting for
share-based payments effective March 1, 2006.
/s/ KPMG LLP
Houston, Texas
May 9, 2008
116
VERSION 7.0
Exhibit 31.1
I, Gerald J. Rubin, certify that:
CERTIFICATION
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;
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;
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):
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 12, 2008
/s/ Gerald J. Rubin
Gerald J. Rubin
Chairman of the Board, Chief Executive Officer,
President, Director and Principal Executive Officer
117
VERSION 7.0
Exhibit 31.2
I, Thomas J. Benson, certify that:
CERTIFICATION
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;
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;
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):
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 12, 2008
/s/ Thomas J. Benson
Thomas J. Benson
Senior Vice President and Chief Financial Officer
118
CERTIFICATION
VERSION 7.0
Exhibit 32
In connection with the Annual Report of Helen of Troy Limited (the "Company") on Form 10-K for the fiscal year ended
February 29, 2008, as filed with the Securities and Exchange Commission (the "Report"), and pursuant to 18 U.S.C.,
chapter 63, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned,
the Chairman, Chief Executive Officer and Director and the Senior Vice President and Chief Financial Officer of the
Company, hereby certifies that to the best of their knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated:
May 12, 2008
/s/ Gerald J. Rubin
Gerald J. Rubin
Chairman of the Board, Chief Executive Officer, President, Director
and Principal Executive Officer
/s/ Thomas J. Benson
Thomas J. Benson
Senior Vice President and Chief Financial Officer
This certification is not deemed to be "filed" for purposes of section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. This certification is not deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates it by reference.
119