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Tax
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2018
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)
Clarendon House
2 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, $0.10 par value per share
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
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 ☑
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ☑ 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, a smaller reporting company or emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Non-accelerated filer ☐
(Do not check if a smaller reporting company)
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant as of August 31, 2017, based upon the closing price of the
common shares as reported by The NASDAQ Global Select Market on such date, was approximately $2,451,672,081.
As of April 21, 2018, there were 26,617,888 common shares, $0.10 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2018 Annual General Meeting of Shareholders to be filed within one hundred and twenty days of the fiscal year ended February 28,
2018 (2018 Proxy Statement) are incorporated by reference into Part III of this report to the extent described herein.
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II Item 5.
Item 6.
Item 7.
Market for Registrant's Common Equity, Related Shareholder Matters and
Issuer 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
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and
Item 9.
Financial Disclosure
Item 9A. Controls and Procedures
PART III Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director
Independence
Item 14. Principal Accounting Fees and Services
PART IV Item 15.
Exhibits, Financial Statement Schedules
Signatures
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EXPLANATORY NOTE
In this report and the accompanying consolidated financial statements and notes, unless
otherwise indicated or the context suggests otherwise, references to “the Company”, “our
Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its
subsidiaries. We refer to our common shares, par value $0.10 per share, as “common stock.”
References to “EMEA” refer to the combined geographic markets of Europe, the Middle East and
Africa. We use product and service names in this report for identification purposes only and they
may be protected in the United States and other jurisdictions by trademarks, trade names, service
marks, and other intellectual property rights of ours and other parties. The absence of a specific
attribution in connection with any such mark does not constitute a waiver of any such right. All
trademarks, trade names, service marks, and logos referenced herein belong to their respective
owners. References to “fiscal” in connection with a numeric year number denotes our fiscal year
ending on the last day of February, during the year number listed. References to “the FASB” refer
to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally
accepted accounting principles. References to “ASU” refer to the codification of GAAP in the
Accounting Standards Updates issued by the FASB. References to “ASC” refer to the codification
of GAAP in the Accounting Standards Codification issued by the FASB.
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Item 1. Business
Our Company
PART I
We incorporated in Texas in 1968 and were reorganized in Bermuda in 1994. We are a leading global
consumer products company offering creative solutions for our customers through a diversified portfolio of
well-recognized and widely-trusted brands. We have built leading market positions through new product
innovation, product quality and competitive pricing.
Segment and Geographic Information
We currently have three business segments, which are included in our financial statements in continuing
operations:
· Housewares: Provides a broad range of products to help with food preparation, cooking,
cleaning, organization, beverage service, and other tasks to ease everyday living for families.
Sales for the segment are primarily to retailers, with some direct-to-consumer product distribution.
· Health & Home: Provides healthcare and home environment products. Sales for the segment are
primarily to retailers, with some direct-to-consumer product distribution.
· Beauty: Provides personal care and beauty appliance products including hair styling appliances,
grooming tools, decorative haircare accessories, and liquid, solid and powder-based personal care
products. This segment sells primarily to retailers and beauty supply wholesalers.
Prior to December 20, 2017, we operated a Nutritional Supplements segment. On December 20, 2017,
we completed the divestiture of the Nutritional Supplements segment through the sale of Healthy
Directions LLC and its subsidiaries to Direct Digital, LLC. Following the sale, we no longer consolidate
our former Nutritional Supplements segment’s operating results. The Nutritional Supplements segment’s
operating results are included in our financial statements and classified within discontinued operations.
We have reallocated corporate overhead expenses to our continuing operating segments that were
previously allocated to our former Nutritional Supplements segment. Unless otherwise noted, all amounts
presented are from continuing operations. See Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) and Note 4 of the accompanying consolidated
financial statements for more information. Discontinued operations in this Annual Report on Form 10-K
refers only to our discontinued Nutritional Supplements segment’s operations.
For more segment and geographic information concerning our net sales revenue, long-lived assets and
operating income, refer to Note 19 in the accompanying consolidated financial statements.
Our Strategic Initiatives
In fiscal 2015, we launched a transformational strategy designed to improve the performance of our
business segments and strengthen our shared service capabilities. This strategy drives our decisions on
where we will operate and how we will achieve our goals in markets around the world. The overall design
of our business and organizational plan is intended to create sustainable and profitable growth and
improve organizational capability. This strategy encompasses the following initiatives:
Invest in our core businesses
We have developed a portfolio of brands that are market leaders or have a path to grow their market
position in attractive categories. This currently includes seven Leadership Brands: OXO,
Honeywell,
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Braun,
PUR,
Hydro
Flask,
Vicks,
and Hot
Tools.
We continue to invest behind these Leadership Brands,
which are our most productive brands, and which we believe have the best prospects for long-term
profitable growth. Our Leadership Brands represented approximately 77% of net sales revenue from
continuing operations during fiscal 2018. We believe that strategic investment in new products, go-to-
market plans and marketing activities will continue to accelerate the organic growth of these brands.
Strategic, disciplined mergers and acquisitions
We are continually looking for new businesses and opportunities to expand in categories and geographies
where we believe we have critical mass and can develop or sustain a competitive advantage. We will
also increase our brand reach through new licensing opportunities when and where it makes sense. We
frequently assess our portfolio of products and businesses to ensure each has a role to support our long-
term plans.
Invest in consumer-centric innovation
We have a long history of developing or acquiring new technologies, new products that improve
consumers’ lives and new designs to differentiate our products from competitors. We continue to focus on
innovation, both in our core categories and product adjacencies. We also focus on initiatives that create
commercial value for existing products in order to increase their appeal and accelerate their organic
growth. Consumer shopping preferences and behaviors have transformed the retail landscape from in-
store to omni-channel purchasing experiences. As the retail consumer evolves, we continue to invest in
our digital capabilities and operational capacity to meet the omni-channel consumers’ needs.
Upgrade our organization and people systems
We believe our employees are our most valuable assets. Attracting, retaining and developing talent is a
key focus to ensure we can continue to deliver strong business results.
Best in class shared services
We have developed a quality, diversified base of suppliers in North America, China and Mexico. Through
our shared service structure, we strive to improve our existing supplier base and infrastructure, develop
new manufacturing partners, leverage scale, reduce lead times and apply best practices to ensure our
products are innovative, on time, on cost and on quality. We also continue to invest in our distribution
center capabilities and information technology systems while applying discipline and best practices to
leverage scale and achieve supply chain excellence.
Attack waste
We continue to adopt more efficient and effective approaches to managing people, teams and operations
to best respond to today’s complex business environment. We believe that combining the best people
and practices with the right technology provides a foundation for profitable growth. We promote a culture
of attacking waste to improve the quality of our products and services, reduce costs and enhance our
capacity to handle increased volume in order to exceed the expectations of our customers and
consumers.
Asset efficiency and shareholder friendly policies
As we manage our businesses for long-term growth and success in the marketplace, we are also looking
to manage our overall base of assets and capital structure to increase shareholder value. We focus on
maximizing cash flow and return on investment, controlling our costs, increasing the efficiency of the
capital we deploy, and optimizing working capital. We also seek to invest in accretive and strategic
acquisitions and, where appropriate, provide a return of capital to shareholders.
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Our Products
The following table summarizes the types of products we sell by business segment:
Segment
Product Category
Primary Products
Housewares
Food Preparation and Storage
Cleaning, Bath and Garden
Infant and Toddler
Hot and Cold Beverage and Food
Containers
Healthcare
Water Filtration
Health & Home
Food preparation tools and gadgets, food storage containers
and storage and organization products
Household cleaning products, shower organization, bathroom
accessories, and gardening products
Feeding and drinking products, child seating, cleaning tools and
nursery accessories
Insulated water bottles, jugs, thermoses, drinkware, travel mugs
and food containers
Thermometers, blood pressure monitors and humidifiers
Faucet mount water filtration systems and pitcher based water
filtration systems
Home Environment
Air purifiers, heaters, fans, humidifiers and dehumidifiers
Beauty
Retail/Professional Appliances and
Accessories
Grooming, Skin Care and Hair Care
Hair, facial and skin care appliances, grooming brushes, tools
and decorative hair accessories
Liquid hair styling, treatment and conditioning products,
shampoos, skin care products, fragrances, deodorants and
antiperspirants
Our Trademarks
We sell certain of our products under trademarks licensed from third parties. We also market products
under a number of trademarks that we own. We believe our principal trademarks, both owned and
licensed, have high levels of brand name recognition among retailers and consumers throughout the
world. Through our favorable partnerships with our licensors, we believe we have developed stable,
enduring relationships that provide access to unique brands that complement our owned and internally
developed trademarks.
The Beauty and Health & Home segments depend upon the continued use of trademarks licensed under
various agreements for a substantial portion of their net sales revenue. 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 some require us to make minimum levels of advertising expenditures.
The following table lists some of our key trademarks by segment:
Segment
Housewares
Health & Home
Beauty
Owned
Licensed
OXO, Good Grips, Hydro Flask, Soft Works, OXO
tot
PUR
Hot Tools, Brut, Pert, Sure, Infusium, Pro Beauty
Tools
Honeywell , Braun, Vicks
Revlon, Bed Head
Patents and Other Intellectual Property
We maintain utility and design patents in the United States and several foreign countries. 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.
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Sales and Marketing
We currently market our products in approximately 87 countries throughout the world. Sales within the
United States comprised approximately 79% of total net sales revenue in both fiscal 2018 and 2017 and
78% in fiscal 2016. Our segments primarily sell their products through mass merchandisers, drugstore
chains, warehouse clubs, home improvement stores, grocery stores, specialty stores, beauty supply
retailers, e-commerce retailers, wholesalers, and various types of distributors, as well as directly to
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 principally through the use
of outside sales representatives and our own internal sales staff, supported by our internal marketing,
category management, engineering, creative services, and customer and consumer service staff. These
groups work closely together to develop pricing and distribution strategies, to design packaging and to
help develop product line extensions and new products.
Research and Development
Our research and development activities focus on new, differentiated and innovative products designed to
drive sustained organic growth. We continually invest to strengthen our product design and research and
development capabilities, including extensive study to gain consumer insight. We incurred total research
and development expenses of $13.5, $11.8 and $11.6 million during fiscal 2018, 2017 and 2016,
respectively.
Manufacturing and Distribution
We contract with unaffiliated manufacturers, primarily in China and Mexico, to manufacture a significant
portion of our finished goods for the Beauty appliances and accessories, Housewares, Healthcare, Water
Filtration, and Home Environment product categories. The North American region of the grooming, skin
and hair care category of the Beauty segment source most of their products from U.S.
manufacturers. For fiscal 2018, 2017 and 2016, finished goods manufactured by vendors in the Far East
comprised approximately 74%, 71% and 70%, respectively, of total finished goods purchased.
In total, we occupy approximately 3,552,728 square feet of owned and leased distribution space in
various locations to support our operations. These facilities include a 1,200,000 square foot distribution
center in Southaven, Mississippi, and a 1,300,000 square foot distribution center in Olive Branch,
Mississippi, used to support a significant portion of our domestic distribution.
Customers
Sales to Walmart, Inc. (including its worldwide affiliates) accounted for approximately 15%, 16% and 18%
of our consolidated net sales revenue in fiscal 2018, 2017 and 2016, respectively. Sales to Amazon.com
Inc. accounted for approximately 13% of our consolidated net sales revenue in fiscal 2018. No other
customers accounted for 10% or more of consolidated net sales revenue during those fiscal years. Sales
to our top five customers accounted for approximately 45% of our consolidated net sales revenue in fiscal
2018, 2017 and 2016.
Order Backlog
When placing orders, our individual consumer, 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.
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Seasonality
SEASONALITY AS A PERCENTAGE OF ANNUAL NET SALES REVENUE
Fiscal Quarter Ended
May
August
November
February
Fiscal Years Ended
the Last Day of February,
2017
2016
2018
22.0 %
23.3 %
28.4 %
26.2 %
22.2 %
23.8 %
29.3 %
24.7 %
22.0 %
23.8 %
29.3 %
25.0 %
Our sales are seasonal due to different calendar events, holidays and seasonal weather
patterns. Historically, the third fiscal quarter produces the highest net sales revenue during the fiscal
year.
Competitive Conditions
We sell our products in markets that are very competitive and mature. Our products compete against
similar products of many large and small companies, including well-known global competitors. In many of
the markets and industry segments in which we sell our products we compete against other branded
products as well as retailers' private-label brands. 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. We
support our products with advertising, promotions and other marketing activities, as well as an extensive
sales force in order to build awareness and to encourage new consumers to try our brands and
products. We are well positioned in the industry segments and markets in which we operate, often
holding a leadership or significant market share position. We believe these advantages allow us to bring
our retailers a differentiated value proposition.
The following table summarizes our primary competitors by business segment:
Segment
Housewares
Health & Home
Beauty
Competitor
Lifetime Brands, Inc. (KitchenAid), Newell Brands Inc., Simple Human LLC, Yeti Holdings, Inc. (Yeti),
Can't Live Without It, Inc. (S'well)
Exergen Corporation, Omron Healthcare, Inc., Crane Engineering, Newell Brands, Inc., Lasko Products,
LLC., The Clorox Company (Brita), Zero Technologies, LLC.
Conair, Spectrum Brands Holdings Inc. (Remington), Newell Brands, Inc., The Procter & Gamble
Company, Unilever N.V., Colgate-Palmolive Company
Governmental, Regulatory and Environmental Matters
Our operations are subject to national, state, local, and provincial jurisdictions’ environmental, health and
safety laws and regulations. Many of the products we sell are subject to a number of product safety laws
and regulations in various jurisdictions. These laws and regulations specify the maximum allowable levels
of certain materials that may be contained in our products, provide statutory prohibitions against
misbranded and adulterated products, establish ingredients and manufacturing procedures for certain
products, specify product safety testing requirements, and set product identification and labeling
requirements.
Additionally, an emerging trend with both governments and our retail customers is to prescribe public and
private social accountability reporting requirements regarding our worldwide business activities. In our
product space, some requirements have already been mandated and we believe others may become
required. Examples of current requirements include conflict minerals content reporting and reporting of
foreign fair labor practices in connection with our supply chain vendors, in addition to evaluating the risks
of human trafficking and slavery.
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We believe that we are in material compliance with these laws, regulations and other reporting
requirements. 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
compliance and social reporting 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
laws, regulations and other reporting mandates.
Employees
As of February 28, 2018, we employed approximately 1,489 full-time employees worldwide. We also use
temporary, part-time and seasonal employees as needed. None of our U.S. employees are covered by a
collective bargaining agreement. Certain of our employees in Europe are covered by collective
arrangements in accordance with local practice. We have never experienced a work stoppage, and we
believe that we have satisfactory working relations with our employees.
Available Information
We maintain our main Internet site at the following address: http://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 “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, our proxy
statements on Schedule 14A, amendments to these reports, and the reports required under Section 16 of
the Exchange Act of transactions in our common stock by directors and officers. 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. Also, on the Investor Relations page,
under the heading “Corporate Governance,” are our Code of Ethics, Corporate Governance Guidelines
and the Charters of the Committees of the Board of Directors.
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Item 1A. Risk Factors
Carefully consider the risks described below and all of the other information included in our Annual Report
on Form 10-K when deciding whether to invest in our securities or otherwise evaluating our business. If
any of the following risks or other events or circumstances described elsewhere in this report materialize,
our business, operating results or financial condition may suffer. In this case, the trading price of our
common stock and the value of your investment might significantly decline. The risks listed below are not
the only risks that we face. Additional risks unknown to us or that we currently believe are insignificant
may also affect 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, customs clearance delays, and operational issues with
any of the third-party logistics providers we use in certain countries are on-going risks of our
business. We also rely upon third-party carriers for our product shipments from our distribution centers to
customers. In certain circumstances, 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 the carriers’ ability to provide
delivery services to meet our shipping needs. Failure to deliver products to our retailers in a timely and
effective manner, often under special vendor requirements to use specific carriers and delivery schedules,
could damage our reputation and brands and result in loss of customers or reduced orders.
Large customers may take actions that adversely affect our gross profit and operating results.
With the continuing trend towards retail trade consolidation, we are increasingly dependent upon key
customers whose bargaining strength is substantial and 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 and term demands, and other conditions, which could
negatively impact our business, operating results and financial condition.
In addition, the growth in e-commerce sales, both by large traditional retailers and pure-play online
retailers, has increased the size and influence of these types of customers. Certain of these customers
source and sell products under their own private label brands that compete with our products. As certain
large customers and online retailers grow even larger and become more sophisticated, they may continue
to demand lower pricing, special packaging, shorter lead times for the delivery of products, smaller more
frequent shipments, 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 these demands, these customers could decrease their purchases from us. A
reduction in the demand for our products by these customers and the costs of complying with their
business demands could have a material adverse effect on our business, operating results and financial
condition.
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We are subject to risks related to our dependence on the strength of retail economies and may be
vulnerable in the event of a prolonged economic downturn.
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, Middle East and Africa (“EMEA”), Asia and Latin
America. These retail economies are affected for the most part 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. Consumer spending in any
geographic region is generally affected by a number of factors, including local economic conditions,
government actions, inflation, interest rates, energy costs, unemployment rates, gasoline prices, and
consumer confidence, all of which are beyond our control. Consumer purchases of discretionary items
tend to decline during recessionary periods, when disposable income is lower, and may impact sales of
our products. Any sustained economic downturn in the United States or any of the other countries in
which we conduct significant business, may cause significant readjustments in both the volume and mix of
our product sales, which could materially and adversely affect our business, operating results and
financial condition.
Our operating results 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 net sales revenue. Our financial condition
and operating results could suffer if we lost all or a portion of the sales to any one of these customers. In
particular, sales to our two largest customers accounted for approximately 15% and 13%, respectively, of
our consolidated net sales revenue in fiscal 2018. While only two customers accounted for 10% or more
of our consolidated net sales revenue in fiscal 2018, sales to our top five customers accounted for
approximately 45% of fiscal 2018 consolidated net sales revenue. We expect that a small group of
customers will continue to account for a significant portion of our net sales revenue. 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 operating results. We regularly monitor and evaluate the credit status of our customers and
attempt to adjust sales terms as appropriate. Despite these efforts, a deterioration in the credit
worthiness or bankruptcy filing of a key customer could have a material adverse effect on our business,
operating results and financial condition.
Expectations regarding recent acquisitions, and any future acquisitions or divestitures, including
our ability to realize related synergies, along with our ability to effectively integrate acquired
businesses or disaggregate divested businesses, may adversely affect the price of our common
stock.
We continue to look for opportunities to make strategic business and/or brand acquisitions. Additionally,
we frequently evaluate our portfolio of business products and may consider divestitures or exits of
businesses that we no longer believe to be an appropriate strategic fit, such as our divestiture of Healthy
Directions in fiscal 2018. Our financial results could be impacted in the event that changes in the cash
flows or other market-based assumptions or conditions cause the value of acquired assets to fall below
book value, or we are not able to deliver the expected benefits or synergies associated with acquisition
transactions, which could also have an impact on associated goodwill and intangible assets. Any
acquisition or divestiture, 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 stock.
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In addition, any acquisition involves numerous risks, including:
·
·
·
·
·
·
·
·
difficulties in the assimilation of the operations, technologies, products, and personnel associated
with the acquisitions;
challenges 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;
challenges realizing anticipated cost savings, synergies and other benefits related to an
acquisition;
risks associated with subsequent losses or 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.
If our goodwill, indefinite-lived intangible assets or other long-term assets become impaired, we
will be required to record impairment charges, which may be significant.
A significant portion of our long-term assets continues to consist of goodwill and other indefinite-lived
intangible assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-
lived intangible assets, but rather review them for impairment on an annual basis or more frequently
whenever events or changes in circumstances indicate that their carrying value may not be
recoverable. If such circumstances or conditions exist, further steps are required in order to determine
whether the carrying value of each of the individual assets exceeds its fair market value. If our analysis
indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to
record a loss equal to the excess of the individual asset’s carrying value over its fair value. The analysis
required by GAAP entails significant amounts of judgment and subjectivity.
We complete our analysis of the carrying value of our goodwill and other intangible assets during the
fourth quarter of our fiscal year, or more frequently, whenever events or changes in circumstances
indicate their carrying value may not be recoverable. Events and changes in circumstances that may
indicate there is impairment and which may indicate interim impairment testing is necessary include, but
are not limited to: strategic decisions to exit a business or dispose of an asset made in response to
changes in economic, political and competitive conditions; the impact of the economic environment on our
customer base and on broad market conditions that drive valuation considerations by market participants;
our internal expectations with regard to future revenue growth and the assumptions we make when
performing our impairment reviews; a significant decrease in the market price of our assets; a significant
adverse change in the extent or manner in which our assets are used; a significant adverse change in
legal factors or the business climate that could affect our assets; an accumulation of costs significantly in
excess of the amount originally expected for the acquisition of an asset; and significant changes in the
cash flows associated with an asset. We analyze these assets at the individual asset, reporting unit and
company levels. As a result of such circumstances, we may be required to record a significant charge to
net income in our financial statements during the period in which any impairment of our goodwill,
indefinite-lived intangible assets or other long-term assets is determined. Any such impairment charges
could have a material adverse effect on our business, results of operations and financial condition.
We rely on our Chief Executive Officer and a limited number of other key senior officers to operate
our business. The loss of any of these individuals could have a material adverse effect on our
business.
The loss of our Chief Executive Officer or any of our key senior officers could have a material adverse
effect on our business, operating results and financial condition, particularly if we are unable to hire and
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integrate suitable replacements on a timely basis. Further, as we continue to grow our business, we will
continue to adjust our senior management team. If we are unable to attract or retain the right individuals
for the team, it could hinder our ability to grow our business and could disrupt our operations or otherwise
have a material adverse effect on our business.
Our operating results may be adversely affected by foreign currency exchange rate fluctuations.
Our functional currency is the U.S. Dollar. Changes in the relation of other foreign currencies to the U.S.
Dollar will affect our sales and profitability and can result in exchange losses because we have operations
and assets located outside the United States. We transact a portion of our international business in
currencies other than the U.S. Dollar (“foreign currencies”). Such transactions include sales, certain
inventory purchases and operating expenses. As a result, portions of our cash, trade accounts receivable
and trade accounts payable are denominated in foreign currencies. Accordingly, foreign operations will
continue to expose us to foreign currency fluctuations, both for purposes of actual conversion and
financial reporting purposes. Additionally, we purchase a substantial amount of our products from Chinese
manufacturers in U.S Dollars. The Chinese Renminbi has fluctuated against the U.S. Dollar in recent
years. In fiscal 2018 the Chinese Renminbi strengthened against the U.S. dollar by approximately
8.0%. Chinese Renminbi currency fluctuations add volatility to our product costs over time.
Where operating conditions permit, we seek to 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 have also historically hedged against certain foreign currency exchange rate-risk by using a
series of forward contracts to protect against the foreign currency exchange risk inherent in our forecasted
transactions denominated in currencies other than the U.S. Dollar. We enter into these types of
agreements where we believe we have meaningful exposure to foreign currency exchange risk and the
contract pricing appears reasonable. It is not practical for us to hedge all our exposures, nor are we able
to accurately project the possible effect of all foreign currency fluctuations on translated amounts or future
net income 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.
The impact of future foreign currency exchange rate fluctuations on our results of operations cannot be
accurately predicted. Accordingly, there can be no assurance that foreign currency exchange rates:
· will be stable in the future;
·
· will not have a material adverse effect on our business, operating results and financial condition.
can be mitigated with currency hedging or other risk management strategies; or
Our business is subject to weather conditions, the duration and severity of the cold and flu
season and other related factors, which can cause our operating results to vary from quarter to
quarter and year to year.
Sales in our Health & Home segment are influenced by weather conditions. Sales volumes for
thermometry, humidifiers and heating appliances are higher during, and subject to, the severity of the cold
weather months, while sales of fans and insect control devices are higher during, and subject to, weather
conditions in spring and summer months. Weather conditions can also more broadly impact sales across
the organization. For instance, natural disasters (such as wildfires, hurricanes and ice storms) or
unusually severe winter weather may result in temporary unanticipated fluctuations in retail traffic and
consumer demand, may impact our ability to staff our distribution facilities or could otherwise impede
timely transport and delivery of products from our distribution facilities. Sales in our Health & Home
segment are also impacted by cough, cold and flu seasonal trends, including the duration and
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severity of the cold and flu season. These factors could have a material adverse effect on our business,
operating results and financial condition.
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, operating results and financial condition.
All of our products are manufactured by unaffiliated companies, most of which are in the Far East,
principally in China. For fiscal 2018, finished goods manufactured in the Far East comprised of
approximately 74% of total finished goods purchased. This concentration 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, additional tariffs and other trade barriers; changes in shipping costs;
currency exchange fluctuations; local political unrest; an extended and complex transportation cycle; the
impact of changing economic conditions; 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
change that impairs our ability to obtain products from manufacturers in that region, or to obtain products
at marketable rates, could have a material adverse effect on our business, operating results and financial
condition.
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 on a
timely basis 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, operating
results and financial condition.
Increased costs of raw materials and energy may adversely affect our operating results and cash
flow.
Significant increases in the costs and availability of raw materials and energy may negatively affect our
operating results. Our suppliers purchase significant amounts of metals and plastics to manufacture our
products. In addition, they also purchase significant amounts of electricity to supply the energy required
in their production processes. Middle East tensions and related political instabilities may drive up fuel
prices resulting in higher transportation prices and product costs. The cost of these raw materials and
energy, in the aggregate, represents a significant portion of our cost of goods sold and certain operating
expenses, which we may not be able to pass on to our customers. Our operating results could be
adversely affected by future increases in these costs.
Disruptions in U.S., Eurozone and other international credit markets may adversely affect our
business, operating results and financial condition.
Disruptions in national and international credit markets could result in limitations on credit availability,
tighter lending standards, higher interest rates on consumer and business loans, and higher fees
associated with obtaining and maintaining credit availability. Disruptions may also materially limit
consumer credit availability and restrict credit availability to us and our customer base. In addition, in the
event of disruptions in the financial markets, current or future lenders may become unwilling or unable to
continue to advance funds under any agreements in place, increase their commitments under existing
credit arrangements or enter into new financing arrangements. The failure of our lenders to provide
sufficient financing may constrain our ability to operate or grow the business and to make complementary
strategic business and/or brand acquisitions. This could have a material adverse effect on our business,
operating results and financial condition.
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Certain of our U.S. distribution facilities are geographically concentrated and operate during peak
shipping periods at or near capacity. These factors increase our risk that disruptions could occur
and significantly affect our ability to deliver products to our customers in a timely manner. Such
disruptions could have a material adverse effect on our business.
Most of our U.S. distribution, receiving and storage functions are consolidated into two distribution
facilities in northern Mississippi. Approximately 63% of our consolidated gross sales volume shipped from
facilities in this region in fiscal 2018. For this reason, any disruption in our distribution process in either of
these facilities, even for a few days, could adversely affect our business, operating results and financial
condition.
Additionally, our U.S. distribution operations may incur capacity constraints during peak shipping periods
as we continue to grow our sales revenue through a combination of organic growth and
acquisitions. These and other factors described above could cause delays in the delivery of our products
and increases in shipping and storage costs that could have a material and adverse effect on our
business, operating results and financial condition.
Our projections of product demand, sales and net income are highly subjective in nature and our
future sales and net income could vary in a material amount from our projections.
From time to time, we may provide financial projections to our shareholders, lenders, investment
community, and other stakeholders of our future sales and net income. Since we do not require long-term
purchase commitments from our major customers and the customer order and ship process is very short,
it is difficult for us to accurately predict the demand for many of our products, or the amount and timing of
our future sales, related net income and cash flows. Our projections are based on management’s best
estimate of sales using historical sales data and other relevant information available at the time. These
projections are highly subjective since sales to our customers can fluctuate substantially based on the
demand of their retail customers and related ordering patterns, as well as other risks described in this
report. Additionally, changes in retailer inventory management strategies could make our inventory
management more difficult. Due to these factors, our future sales and net income could vary materially
from our projections.
We rely on licensed trademarks from third parties and license certain trademarks to third parties
in exchange for royalty income, the loss of which could have a material adverse effect on our
revenues and profitability.
A substantial portion of our sales revenue comes from selling products under licensed trademarks,
particularly in the Beauty and Health & Home segments. As a result, we are dependent upon the
continued use of these trademarks. Additionally, we license certain owned trademarks to third parties in
exchange for royalty income. It is possible that certain actions taken by us, our licensors, licensees, or
other third parties might diminish greatly the value of any of our licensed trademarks. Some of our
licensors and licensees also have the ability to terminate their license agreements with us at their option
subject to each parties’ right to continue the license for a limited period of time following notice of
termination. If we or our licensees were unable to sell products under these licensed trademarks, or one
or more of our license agreements were terminated or the value of the trademarks were diminished, the
effect on our business, operating results and financial condition could be both negative and material.
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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 than our competition. We face the risk that our competitors
will introduce innovative new products that compete with our products. 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 competitive new products, it may have an adverse effect on
our business, operating results and financial condition.
Our operating results may be adversely affected by trade barriers, exchange controls,
expropriations, and other risks associated with domestic and foreign operations.
The economies of foreign countries important to our operations, including countries in Asia, EMEA and
Latin America, could suffer slower economic growth or economic, social and/or political instability or
hyperinflation in the future. Our international operations in countries in Asia, EMEA and Latin America,
including manufacturing and sourcing operations (and the international operations of our customers), are
subject to inherent risks which could adversely affect us. Additionally, there may be uncertainty resulting
from recent political changes in the U.S. and abroad, the Brexit referendum in the U.K., ongoing terrorist
activity, and other global events. These factors are outside of our control, but may nonetheless cause us
to adjust our strategy in order to compete effectively in global markets.
The domestic and foreign risks of these changes include, among other things:
·
·
·
·
·
·
·
·
·
·
·
·
·
·
protectionist policies restricting or impairing the manufacturing, sales or import and export of our
products;
new restrictions on access to markets;
lack of required infrastructure;
inflation (including hyperinflation) or recession;
changes in, and the burdens and costs of compliance with, a variety of U.S. and foreign laws and
regulations, including tax laws, accounting standards, environmental laws, and occupational health
and safety laws;
social, political or economic instability;
acts of war and terrorism;
natural disasters or other crises;
reduced protection of intellectual property rights in some countries;
increases in duties and taxation;
restrictions on transfer of funds or exchange of currencies;
currency devaluations;
expropriation of assets; and
other adverse changes in policies, including monetary, tax or lending policies, encouraging foreign
investment or foreign trade by our host countries.
Should any of these events occur, our ability to sell or export our products or repatriate profits could be
impaired, we could experience a loss of sales and profitability from our domestic or international
operations, and/or we could experience a substantial impairment or loss of assets, any of which could
materially and adversely affect our business, operating results and financial condition.
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Our liquidity may be materially adversely affected by constraints in the capital markets.
We need sufficient sources of liquidity to fund our working capital requirements, service our outstanding
indebtedness and finance business opportunities. Without sufficient liquidity, we could be forced to curtail
our operations, or we may not be able to pursue business opportunities. The principal sources of our
liquidity are funds generated from operating activities, available cash, credit facilities, and other debt
arrangements. If our sources of liquidity do not satisfy our requirements, we may need to seek additional
financing. The future availability of financing will depend on a variety of factors, such as economic and
market conditions, the regulatory environment for banks and other financial institutions, the availability of
credit and our reputation with potential lenders. These factors could materially adversely affect our costs
of borrowing and our ability to pursue business opportunities, and threaten our ability to meet our
obligations as they become due.
In addition, covenants in our debt agreements could restrict or delay our ability to respond to business
opportunities, or in the event of a failure to comply with such covenants, could result in an event of
default, which if not cured or waived, could have a material adverse effect on us.
We rely on central Global Enterprise Resource Planning (“ERP”) systems and other peripheral
information systems. Obsolescence or interruptions in the operation of our computerized systems
or other information technologies could have a material adverse effect on our operations and
profitability.
Our operations are largely dependent on our ERP system. We continuously make adjustments to
improve the effectiveness of the ERP and other peripheral information systems, including the installation
of significant new subsystems. Any failures or disruptions in the ERP and other information systems or
any complications resulting from ongoing adjustments to our systems could cause interruption or loss of
data in our information or logistical systems that could materially impact our ability to procure 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. In addition, 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.
Failure to maintain the integrity of and protect internal or customer data could have a material
advere effect on our operations and profitability and may result in faulty business decisions,
operational inefficiencies, damage to our reputation and/or subject us to costs, fines, or lawsuits.
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 rely on
commercially available systems, software, tools, and monitoring to provide security for processing,
transmission and storage of confidential information and data. While we have security measures in place,
our systems and networks may be subject to ongoing threats and, therefore, our security measures may
be breached as a result of employee error, failure to implement appropriate processes and procedures,
advances in computer and software capabilities and encryption technology, new tools and discoveries,
malfeasance, third-party action, including cyber-attacks or other international misconduct by computer
hackers or otherwise. This could result in one or more third-parties obtaining unauthorized access to our
client data or our internal data, including personally identifiable information, intellectual property and other
confidential business information. Third-parties may also attempt to fraudulently induce employees into
disclosing sensitive information such as user names, passwords or other information in order to gain
access to client data or our internal data, including intellectual property and other confidential business
information.
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Because techniques used to obtain unauthorized access or sabotage systems change frequently and
generally are not identified until they are launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative or mitigation measures. Though it is difficult to
determine what harm may directly result from any specific interruption or breach, any failure to maintain
performance, reliability, security and availability of our network infrastructure or otherwise to maintain the
confidentiality, security, and integrity of data that we store or otherwise maintain on behalf of third-parties
may harm our reputation and our relationships or harm our ability to retain existing clients and attract new
clients. Any of these could harm our business, financial condition and results of operations.
If such unauthorized disclosure or access does occur, we may be required to notify our clients or those
persons whose information was improperly used, disclosed or accessed. We may also be subject to
claims of breach of contract for such use or disclosure, investigation and penalties by regulatory
authorities and potential claims by persons whose information was improperly used or disclosed. The
unauthorized use or disclosure of information may result in the termination of one or more of our
commercial relationships or a reduction in confidence and usage of our solutions. We could also become
the subject of regulatory action or litigation from our consumers, customers, employees, suppliers, service
providers, and shareholders, which could damage our reputation among our current and potential clients,
require significant expenditures of capital and other resources, and cause us to lose business and
revenue. Additionally, an unauthorized disclosure or use of information could cause interruptions in our
operations and might require us to spend significant management time and other resources investigating
the event and dealing with local and federal law enforcement. Regardless of the merits and ultimate
outcome of these matters, the time and expense that may be required to devote to their resolution could
have a material adverse effect on our business, operating results and financial condition.
Even if we do not suffer a data security breach, the increase in the number and the scope of data security
incidents has increased regulatory and industry focus on security requirements and heightened data
security industry practices. New regulation, evolving industry standards, and the interpretation of both,
may cause us to incur additional expense in complying with any new data security requirements. Further,
any actual or perceived threats to the security of computers and computer networks, especially mobile
devices and mobile networks, could lead existing and potential users to refrain from responding to online
advertising.
Recent legal developments in Europe could result in changes to our business practices, penalties,
increased cost of operations, or otherwise harm our business.
Recent legal developments in Europe have created compliance uncertainty regarding the collection,
retention and transfer of personal data. More specifically, the General Data Protection Regulation
(GDPR), coming into application in the European Union (EU) on May 25, 2018, will apply to all of our
activities related to EU individuals. The GDPR will create a range of new compliance obligations, which
could result in increased cost of operations, cause us to change our business practices, and will
significantly increase financial penalties for noncompliance.
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Our business involves the potential for product recalls, product liability and other claims against
us, which could materially and adversely affect our business, operating results and financial
condition.
We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that
arise in the ordinary course of our business and that could have a material adverse effect on us. These
matters may include personal injury and other tort claims, deceptive trade practices disputes, intellectual
property disputes, product recalls, contract disputes, warranty disputes, employment and tax matters and
other proceedings and litigation, including class actions. It is not possible to predict the outcome of
pending or future litigation. As with any litigation, it is possible that some of the actions could be decided
unfavorably, resulting in significant liability and, regardless of the ultimate outcome, can be costly to
defend. Our results and our business could also be negatively impacted if one of our brands suffers
substantial damage to its reputation due to a significant product recall or other product-related litigation
and if we are unable to effectively manage real or perceived concerns about the safety, quality, or efficacy
of our products.
We also face exposure to product liability and other claims in the event that one of our products is alleged
to have resulted in property damage, bodily injury or other adverse effects. Although we maintain liability
insurance in amounts that we believe are reasonable, that insurance is, in most cases, subject to large
self-insured retentions for which we are responsible. We cannot provide assurance that we will be able to
maintain such insurance on acceptable terms, if at all in the future, or that product liability or other claims
will not exceed the amount of insurance coverage, or that all such matters would be covered by our
insurance. As a result, these types of claims could have a material adverse effect on our business,
operating results and financial condition.
Our judgments regarding the accounting for tax positions and the resolution of tax disputes may
impact our net earnings and cash flow.
Significant judgment is required to determine our effective tax rate and evaluate our tax positions. We
provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or
measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state, local
and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may
impact our effective tax rate and financial results. Additionally, we are subject to audits in the various
taxing jurisdictions in which we conduct business. In cases where audits are conducted and issues are
raised, a number of years may elapse before such issues are finally resolved. Unfavorable resolution of
any tax matter could increase the effective tax rate, which could have an adverse effect on our operating
results and cash flow. For additional information regarding our taxes, see Note 21 to the accompanying
consolidated financial statements.
Changes in laws, including tax laws, and the costs and complexities of compliance with such laws
could have a material adverse impact on our business.
The impact of future legislation in the U.S. or abroad, including such things as employment and health
insurance laws, climate change related legislation, tax legislation, regulations or treaties is always
uncertain. Federal and local legislative agendas from time to time contain numerous proposals dealing
with taxes, financial regulation, energy policy, environmental policy, transportation policy and
infrastructure policy, among others that, if enacted into law, could increase our costs of doing business.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted on December 22, 2017, and significantly
affected U.S. tax law by changing how the U.S. imposes income tax. The U.S. Department of Treasury
has broad authority to issue regulations and interpretative guidance that may significantly impact how we
will apply the law and impact our results of operations in the period issued.
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The Tax Act requires complex computations not previously provided in U.S. tax law. As such, the
application of accounting guidance for such items is currently uncertain. Further, compliance with the Tax
Act and the accounting for such provisions require accumulation of information not previously required or
regularly produced. As additional regulatory guidance is issued by the applicable taxing authorities, as
accounting treatment is clarified, as we perform additional analysis on the application of the law, and as
we refine estimates in calculating the effect, our final analysis, which will be recorded in the period
completed, may be different from our current provisional amounts, which could materially affect our tax
obligations and effective tax rate.
Under current tax law, favorable tax treatment of our non-U.S. income is dependent on our ability
to avoid classification as a Controlled Foreign Corporation. Changes in the composition of our
stock ownership 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 our
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 together own more than 50 percent of the
stock outstanding. A U.S. shareholder is defined as any U.S. person who owns directly, indirectly, or
constructively: (1) 10 percent or more of the total combined voting power of all classes of stock, or (2) 10
percent or more of the total value of shares of all classes of stock. If the IRS or a court determined that we
were a CFC at any time during the tax year, then each of our U.S. shareholders as defined above 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 of our subsidiaries determined to be a CFC) for the
period during which we (and our non-U.S. subsidiaries) were deemed 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 were deemed to be a CFC.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
As of February 28, 2018, we own, lease or otherwise utilize through third-party management service
agreements, a total of 41 properties worldwide, which include selling, procurement, research and
development, administrative, distribution facilities, and 35 acres of land held for expansion. All properties
operated by us are adequate for their intended purpose.
Properties we own by location, type and use, segment and approximate size are listed below:
Location
Owned Properties
El Paso, Texas, USA
El Paso, Texas, USA
Olive Branch, Mississippi, USA
Southaven, Mississippi, USA
Sheffield, England
Mexico City, Mexico
Type and Use
Business Segment
Approximate Size
(Square Feet)
Land & Building - U.S.
Headquarters
Land & Building - Distribution
Facility
Land & Building - Distribution
Facility
Land & Building - Distribution
Facility
Land & Building - Office Space
Land & Building - Office Space
All Segments
Housewares, Health & Home and Beauty
Health & Home and Beauty
Housewares, Beauty
Housewares, Health & Home and Beauty
Health & Home and Beauty
135,000
408,000
1,300,000
1,200,000
10,400
3,900
The number of properties we lease or otherwise utilize by type and use and segment are listed below:
Segments Served
All Segments
Multiple Segments
Housewares
Health & Home
Beauty
Other
Approximate square footage of all
properties leased or otherwise
utilized
Item 3. Legal Proceedings
Office Space
Distribution Facility
Total
6
-
7
6
4
23
-
1
3
2
6
12
6
1
10
8
10
35
258,236
644,728
902,964
We are involved in various 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, operating results or liquidity. See Note 14 to the accompanying consolidated financial
statements for a further discussion.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Price Range of Common Stock
Our common stock is listed on the NASDAQ Global Select Market (“NASDAQ”) [symbol: HELE]. The
following table provides for the latest two fiscal years, in dollars per share, the high and low sales prices of
the common stock reported on the NASDAQ. Quotations are inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions.
FISCAL 2018
First quarter
Second quarter
Third quarter
Fourth quarter
FISCAL 2017
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
$
$
$
99.25
102.88
99.25
100.55
105.14
106.18
92.75
99.55
85.50
87.45
85.40
83.60
91.38
89.60
77.50
79.90
Approximate Number of Equity Security Holders of Record
Our common stock is our only class of equity security outstanding at February 28, 2018. As of April
21, 2018, there were 152 holders of record of our common stock. A substantially greater number of
holders of our common stock are “street name” or beneficial holders whose shares are held of record by
banks, brokers and other financial institutions.
Cash Dividends
Our current policy is to retain earnings to provide funds for the operation and expansion of our business,
common stock repurchases and for potential acquisitions. We have not paid any cash dividends on our
common stock since inception. 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. Generally,
our Credit Agreement limits our ability to declare or pay cash dividends to our shareholders if, (1) the
Leverage Ratio (as defined in the Credit Agreement) on a pro forma basis is greater than 3.50 to 1.00,
and (2) unrestricted cash, cash equivalents and availability for borrowings under the Credit Agreement is
less than $25 million.
Issuer Purchases of Equity Securities
On May 10, 2017, our Board of Directors authorized the repurchase of up to $400 million of our
outstanding common stock. The authorization is effective until May 2020 and replaced our former
repurchase authorization, of which approximately $82 million remained. These repurchases may include
open market purchases, privately negotiated transactions, block trades, accelerated stock repurchase
transactions, or any combination of such methods. The number of shares purchased and the timing of
the purchases will depend on a number of factors, including share price, trading volume and general
market conditions, working capital requirements, general business conditions, financial conditions, any
applicable contractual limitations, and other factors, including alternative investment
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opportunities. See Note 12 to the accompanying consolidated financial statements for additional
information.
Our current equity-based compensation plans include provisions that allow for the “net exercise” of share
settled awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding
taxes and exercise price of the shares due from the option or other share-based award holders are settled
by having the holder tender back to us a number of shares at fair value equal to the amounts due. Net
exercises are treated as purchases and retirements of shares.
The following table summarizes our share repurchase activity for the periods covered below:
(in thousands, except share and per share data)
Common stock repurchased on the open market or through tender offer:
Number of shares
Aggregate value of shares
Average price per share
Common stock received in connection with share-based compensation:
Number of shares
Aggregate value of shares
Average price per share
Year Ended the Last Day of February
2016
2017
2018
717,300
922,731
$
$
65,795 $
91.73 $
75,000 $
81.28 $
1,126,796
100,000
88.75
$
$
75,785
7,258 $
95.77 $
6,286
595 $
94.61 $
117,294
6,411
54.66
The following schedule sets forth the purchase activity for each month during the three months ended
February 28, 2018:
ISSUER PURCHASES OF EQUITY SECURITIES FOR THE THREE MONTHS ENDED FEBRUARY 28, 2018
Period
December 1 through December 31, 2017
January 1 through January 31, 2018
February 1 through February 28, 2018
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
94.08
96.22
90.17
90.21
2,146 $
702
406,273
409,121 $
22
Maximum
Dollar Value of
Shares that May
Yet be Purchased
Under the Plans
or Programs
(in thousands)
364,726
364,658
328,023
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
2,146 $
702
406,273
409,121
Table of Contents
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 was invested on March 1, 2013. The Peer Group Index is the Dow
Jones–U.S. Personal Products, Broad Market Cap, Yearly, and 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 stock.
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 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 Exchange Act, except to the extent that
we specifically incorporate this information by reference.
23
Table of Contents
Item 6. Selected Financial Data
The selected consolidated statements of income and cash flow data for fiscal 2018, 2017 and 2016, and
the selected consolidated balance sheet data as of the end of fiscal 2018 and 2017, have been derived
from our audited consolidated financial statements included in this report. The selected consolidated
statements of income and cash flow data for fiscal 2015 and 2014, and the selected consolidated balance
sheet data as of the end fiscal 2016, 2015 and 2014, have been derived from our audited consolidated
financial statements, which are not included in this report. 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. In December 2017, we sold our former
Nutritional Supplements segment. The operating results of this segment are presented as discontinued
operations for all applicable periods presented. Additional information related to the sale of our former
Nutritional Supplements segment is included in Note 4 to the accompanying consolidated financial
statements.
(in thousands, except per share data)
Income Statement Data:
Sales revenue, net
Gross profit
Asset impairment charges
Operating income
Interest expense
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Earnings (loss) per share - basic
Continuing operations
Discontinued operations
Net income
Earnings (loss) per share - diluted
Continuing operations
Discontinued operations
Net income
$
$
$
$
$
2018
(1) (2)
2017
(1) (2)
2016
(1) (2)
2015
(1)
2014
1,489,747 $ 1,406,676 $ 1,392,575 $ 1,344,736 $ 1,317,153
516,703
12,049
117,100
10,193
20,886
86,248
-
86,248
525,734
6,000
116,294
10,581
13,021
92,991
8,237
101,228
622,101
15,447
169,062
13,951
26,556
128,882
(84,436)
44,446
582,557
2,900
169,664
14,361
11,407
144,310
(3,621)
140,689
526,672
9,000
152,215
14,079
12,332
126,322
4,842
131,164
4.76 $
(3.12)
1.64 $
4.73 $
(3.10)
1.63 $
5.24 $
(0.13)
5.11 $
5.17 $
(0.13)
5.04 $
3.29 $
0.29
3.58 $
3.23 $
0.29
3.52 $
4.42 $
0.17
4.59 $
4.35 $
0.17
4.52 $
2.69
-
2.69
2.66
-
2.66
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
27,077
27,254
27,522
27,891
28,273
28,749
28,579
29,035
32,007
32,386
Cash Flow Data from Continuing Operations:
Depreciation and amortization
Net cash provided by operating activities
Capital and intangible asset expenditures
Payments to acquire businesses, net of cash acquired
Net amounts borrowed (repaid)
(3)
(in thousands)
Balance Sheet Data from Continuing Operations:
$
33,730 $
36,175 $
34,889 $
34,213 $
218,609
13,605
-
(197,000)
212,491
15,507
209,267
(133,200)
170,263
16,676
43,150
190,700
171,742
5,908
195,943
240,600
33,839
154,165
40,463
-
(64,393)
2018
(1)
2017
(1)
2016
(1)
2015
2014
(3)
Working capital
Goodwill and other intangible assets
Total assets
Long-term debt
Stockholders' equity
Cash dividends
(3)
(4)
(3)
$
258,222 $
905,235
1,621,320
287,985
1,014,459
-
267,897 $
938,324
1,613,942
461,211
1,020,766
-
504,338 $
762,879
308,895 $
746,542
1,656,262 1,440,130
411,307
904,565
-
600,107
930,043
-
286,122
775,550
1,533,302
95,707
1,029,487
-
(1)
In December 2017, we divested our former Nutritional Supplements segment, which is reported as discontinued
operations. For more information see Note 4 to the accompanying consolidated financial statements.
24
Table of Contents
(2)
Includes the material impact of new business acquisitions as follows:
·
·
Fiscal 2017 includes eleven and one-half months of operating results from the acquisition of Hydro Flask, acquired for
a net cash purchase price of $209.3 million. Fiscal 2018 and thereafter includes a full year of operating results.
Fiscal 2016 includes eleven months of operating results from the Vicks VapoSteam inhalant business acquired for a
net cash purchase price of $42.8 million. Fiscal 2017 and thereafter includes a full year of operating results.
(3) Fiscal 2016 and 2015 include certain reclassifications to conform with fiscal 2017 adopted accounting changes.
(4) During fiscal 2018, 2017, 2016, 2015 and 2014, we repurchased and retired 793,085, 929,017, 1,244,090, 4,174,093 and
146,539 shares of common stock having total cost of $73.1, $75.6, $106.4, $278.4 and $8.2 million, respectively.
25
Table of Contents
Information Regarding Forward-Looking Statements
Certain written and oral statements in this Form 10-K 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 (the "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 may 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 as
filed. We undertake no obligation to publicly update or revise any forward-looking statements as a result
of new information, future events or otherwise.
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
in
Item
1A.,“Risk
Factors,”
and
in
the
section
entitled
“Information
Regarding
Forward-Looking
Statements,”
preceding
this
MD&A,
and
in
Item
7A.,
“Quantitative
and
Qualitative
Disclosures
About
Market
Risk.”
Throughout
MD&A,
we
refer
to
our
Leadership
Brands,
which
are
brands
that
have
number-one
and
number-two
positions
in
their
respective
categories
and
include
OXO,
Honeywell,
Braun,
PUR,
Hydro
Flask,
Vicks,
and
Hot
Tools.
Throughout
MD&A,
we
refer
to
certain
measures
used
by
management
to
evaluate
financial
performance.
We
also
may
refer
to
a
number
of
financial
measures
that
are
not
defined
under
GAAP,
but
have
corresponding
GAAP-based
measures.
Where
non-GAAP
measures
appear,
we
provide
tables
reconciling
these
to
their
corresponding
GAAP-based
measures
and
refer
to
a
discussion
of
their
use.
We
believe
these
measures
provide
investors
with
important
information
that
is
useful
in
understanding
our
business
results
and
trends.
Overview
We are a leading global consumer products company offering creative products and solutions for our
customers through a diversified portfolio of well-recognized and widely-trusted brands. We have built
leading market positions through new product innovation, product quality and competitive pricing. We
currently operate in three segments consisting of Housewares, Health & Home and Beauty. In fiscal
2015, we launched a transformational strategy to improve the performance of our business segments and
strengthen our shared service capabilities. We believe we continue to make progress on achieving our
strategic objectives.
26
Table of Contents
Fiscal 2018 - Significant Developments
An overview of our significant developments are provided below:
· On October 5, 2017, we announced that we had approved a restructuring plan (referred to as
“Project Refuel”) intended to enhance the performance primarily in the Beauty and Nutritional
Supplements segments. Following the divestiture of our former Nutritional Supplements segment,
we are targeting total annualized profit improvements of approximately $8.0 million over the
duration of the plan. We estimate the plan to be completed by the first quarter of fiscal 2020 and
expect to incur total restructuring charges in the range of approximately $3.2 to $4.8 million over
the period. Fiscal 2018 includes pre-tax restructuring charges of $1.9 million assocated with
Project Refuel. Project Refuel includes a reduction-in-force and the elimination of certain
contracts. See Note 13 to the accompanying consolidated financial statements for additional
information.
· On December 20, 2017, we completed the divestiture of the Nutritional Supplements segment
through the sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC. The
purchase price from the sale is comprised of $46 million in cash, paid at closing, and a
supplemental payment targeted at $25.0 million payable on or before August 1, 2019. See Note 4
to the accompanying consolidated financial statements for additional information.
· On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among
other changes, the Tax Act lowered the U.S. corporate income tax rate from 35% to 21% and
established a modified territorial system requiring mandatory deemed repatriation tax on
undistributed earnings of certain foreign subsidiaries. The rate change is effective at the
beginning of calendar year 2018 and, as a result, we have a blended U.S. federal statutory tax
rate of 32.7% for fiscal 2018. As a result of the enactment, we have recorded a provisional tax
expense of $17.9 million related to the one-time remeasurement of our U.S. deferred tax assets
and liabilities based on the rates at which they are expected to reverse in the future, the one-time
repatriation tax applied to our undistributed foreign earnings, and the impact of executive
compensation that is no longer deductible under the Tax Act. On an ongoing basis, we expect
that the Tax Act will result in a reduction to our annual effective tax rate of approximately one
percentage point, primarily due to the reduction in the U.S. corporate income tax rate.
· During fiscal 2018, we repurchased 793,085 shares of our common stock at an average price of
$92.13 per share for a total cost of $73.1 million.
· During fiscal 2018, we recorded non-cash asset impairment charges of $15.4 million ($13.8 million
after tax) related to certain trademarks in the Beauty segment.
Significant Trends Impacting the Business
Foreign Currency Exchange Rate Fluctuations
Due to the nature of our operations, we have exposure to the impact of fluctuations in exchange rates
from transactions that are denominated in a currency other than our reporting currency (the U.S.
Dollar). The most significant currencies affecting our operating results are the British Pound, Euro,
Canadian Dollar, and Mexican Peso. For fiscal 2018, changes in foreign currency exchange rates had a
favorable impact on consolidated U.S. Dollar reported net sales revenue of approximately $5.2 million, or
0.4%. For fiscal 2017, changes in foreign currency exchange rates had an unfavorable impact on
consolidated U.S. Dollar reported net sales revenue of approximately $9.7 million, or 0.7%.
27
Table of Contents
Consumer Spending and Changes in Shopping Preferences
Our business depends upon discretionary consumer demand for most of our products and primarily
operates within mature and highly developed consumer markets. The principal driver of our operating
performance is the strength of the U.S. retail economy, as approximately 79%, 79% and 78% of our
consolidated net sales were from U.S. shipments in fiscal 2018, 2017, and 2016
respectively. Additionally, the shift in consumer shopping preferences to online or multichannel shopping
experiences has shifted the concentration of our sales. For fiscal 2018, 2017 and 2016, our net sales to
customers fulfilling end-consumer online orders and online sales directly to consumers comprised
approximately 15%, 12% and 9%, respectively, of our total consolidated net sales revenue for each fiscal
year and grew over 30% in fiscal 2018. With the continued growth in online sales across the retail
landscape, many brick and mortar retailers are aggressively looking for ways to improve their customer
delivery capabilities to be able to meet customer expectations. As a result, it will become increasingly
important for us to leverage our distribution capabilities in order to meet the changing demands of our
customers, as well as to increase our online capabilities to support our direct-to-consumer sales channels
and online channel sales by our retail customers.
Variability of the Cough/Cold/Flu Season
Sales in several of our Health & Home segment categories are highly correlated to the severity of winter
weather and cough/cold/flu incidence. In the U.S., the cough/cold/flu season historically runs from
November through March, with peak activity normally in January to March. For the 2017-2018 season,
fall and winter weather was unseasonably cold and cough/cold/flu incidence was significantly higher than
the 2016-2017 season, which was a below average season.
28
Table of Contents
Results of Operations
The following table provides selected operating data, in U.S. Dollars, as a percentage of net sales
revenue, and as a year-over-year percentage change.
(in thousands)
Sales revenue by segment, net
Housewares
Health & Home
Beauty
Total sales revenue, net
Cost of goods sold
Gross profit
Selling, general and administrative expense (SG&A)
Asset impairment charges
Restructuring charges
Operating income
Nonoperating income, net
Interest expense
Income before income tax
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations
Net income
(1)
Fiscal Years Ended
the Last Day of February,
(2)
(1) (2)
2017
(1)
2016
(1)
2018
% of Sales Revenue, net
2018
2017
2016
(3)
$
$
457,819 $
682,605
349,323
1,489,747
867,646
622,101
435,735
15,447
1,857
169,062
327
(13,951)
155,438
26,556
128,882
(84,436)
44,446 $
418,128 $
632,769
355,779
1,406,676
824,119
582,557
409,993
2,900
-
169,664
414
(14,361)
155,717
11,407
144,310
(3,621)
140,689 $
310,663
642,735
439,177
1,392,575
866,841
525,734
403,440
6,000
-
116,294
299
(10,581)
106,012
13,021
92,991
8,237
101,228
30.7 %
45.8 %
23.4 %
100.0 %
58.2 %
41.8 %
29.2 %
1.0 %
0.1 %
11.3 %
- %
(0.9)%
10.4 %
1.8 %
8.7 %
(5.7)%
3.0 %
29.7 %
45.0 %
25.3 %
100.0 %
58.6 %
41.4 %
29.1 %
0.2 %
- %
12.1 %
- %
(1.0)%
11.1 %
0.8 %
10.3 %
(0.3)%
10.0 %
22.3 %
46.2 %
31.5 %
100.0 %
62.2 %
37.8 %
29.0 %
0.4 %
- %
8.4 %
- %
(0.8)%
7.6 %
0.9 %
6.7 %
0.6 %
7.3 %
% Change
18/17
17/16
9.5 %
7.9 %
(1.8)%
5.9 %
5.3 %
6.8 %
6.3 %
*
*
(0.4)%
(21.0)%
(2.9)%
(0.2)%
132.8 %
(10.7)%
*
(68.4)%
34.6 %
(1.6)%
(19.0)%
1.0 %
(4.9)%
10.8 %
1.6 %
(51.7)%
- %
45.9 %
38.5 %
35.7 %
46.9 %
(12.4)%
55.2 %
(144.0)%
39.0 %
(1) During fiscal 2018, we divested our Nutritional Supplements segment, which is reported as discontinued operations for all
periods presented. For more information see Note 4 to the accompanying consolidated financial statements.
(2) Fiscal 2017 includes eleven and one-half months of operating results for Hydro Flask, acquired on March 18, 2016. Fiscal
2018 includes a full year of operating results for Hydro Flask.
(3) Sales revenue percentages by segment are computed as a percentage of the related segment’s net sales revenue to total
net sales revenue. All other percentages are computed as a percentage of total net sales revenue.
* Not meaningful.
Fiscal 2018 Financial Results
· Consolidated net sales revenue increased 5.9% or $83.1 million, to $1,489.7 million in fiscal 2018
compared to $1,406.7 million in fiscal 2017.
· Consolidated operating income decreased 0.4%, or $0.6 million, to $169.1 million for fiscal 2018
compared to $169.7 million in fiscal 2017. Consolidated operating margin decreased 0.8
percentage points to 11.3% of consolidated net sales revenue in fiscal 2018 compared to 12.1% in
fiscal 2017. Fiscal 2018 includes pre-tax non-cash asset impairment charges of $15.4 million, a
charge related to the bankruptcy of Toys ‘R’ Us (“TRU”) of $3.6 million and restructuring charges
of $1.9 million. Fiscal 2017 includes non-cash asset impairment charges of $2.9 million and a
patent litigation charge of $1.5 million.
· Consolidated adjusted operating income increased 6.7%, or $14.0 million, to $223.9 million for
fiscal 2018 compared to $209.9 million in fiscal 2017. Consolidated adjusted operating margin
increased 0.1 percentage point to 15.0% of consolidated net sales revenue in fiscal 2018
compared to 14.9% in fiscal 2017.
·
Income from continuing operations decreased 10.7%, or $15.4 million, to $128.9 million in fiscal
2018 compared to $144.3 million in fiscal 2017. Diluted earnings per share (“EPS”) from
continuing operations decreased 8.5% to $4.73 in fiscal 2018 compared to $5.17 in fiscal 2017.
29
Table of Contents
· Adjusted income from continuing operations increased 9.0% to $197.2 million in fiscal 2018,
compared to $180.9 million in fiscal 2017. Adjusted diluted EPS from continuing operations
increased 11.6% to $7.24 in fiscal 2018 compared to $6.49 in fiscal 2017.
·
Loss from discontinued operations, net of tax, increased to ($84.4) million for fiscal 2018,
compared to ($3.6) million for fiscal 2017. Diluted loss per share from discontinued operations
was ($3.10) for fiscal 2018 compared to ($0.13) for fiscal 2017. Fiscal 2018 includes after tax non-
cash asset impairment charges of $83.5 million, restructuring charges of $0.4 million and a gain on
the sale of discontinued operations of $1.0 million. Fiscal 2017 includes after tax non-cash asset
impairment charges of $5.9 million.
· Net income was $44.4 million for fiscal 2018 compared to $140.7 million for fiscal 2017. Diluted
EPS was $1.63 for fiscal 2018 compared to $5.04 for fiscal 2017.
Fiscal 2017 Financial Results
· Consolidated net sales revenue increased 1.0%, or $14.1 million, to $1,406.7 million in fiscal 2017
compared to $1,392.6 million fiscal 2016.
· Consolidated operating income increased 45.9%, or $53.4 million, to $169.7 million for fiscal 2017
compared to $116.3 million in fiscal 2016. Consolidated operating margin increased 3.7
percentage points to 12.1% of consolidated net sales revenue in fiscal 2017 compared to 8.4% in
fiscal 2016. Fiscal 2017 included pre-tax non-cash asset impairment charges of $2.9 million and a
patent litigation charge of $1.5 million. Fiscal 2016 included asset impairment charges of $6.0
million, CEO succession costs of $6.0 million, acquisition-related expenses of $0.7 million,
Venezuelan remeasurement-related charges of $18.7 million and patent litigation charges of $17.8
million.
· Consolidated adjusted operating income increased 8.1%, or $15.7 million, to $209.9 million for
fiscal 2017 compared to $194.2 million in fiscal 2016. Consolidated adjusted operating margin
increased 1.0 percentage points to 14.9% of consolidated net sales revenue in fiscal 2017
compared to 13.9% in fiscal 2016.
·
Income from continuing operations increased 55.2%, or $51.3 million, to $144.3 million in fiscal
2017 compared to $93.0 million in fiscal 2016. Diluted EPS from continuing operations increased
60.1% to $5.17 in fiscal 2017 compared to $3.23 in fiscal 2016.
· Adjusted income from continuing operations increased 8.3% to $180.9 million in fiscal 2017,
compared to $166.9 million in fiscal 2016. Adjusted diluted EPS from continuing operations
increased 12.3% to $6.49 in fiscal 2017 compared to $5.78 in fiscal 2016.
·
Loss from discontinued operations, net of tax, was $3.6 million for fiscal 2017 and included after
tax non-cash asset impairment charges of $5.9 million, compared to income from discontinued
operations, net of tax, of $8.2 million in fiscal 2016. Diluted loss per share from discontinued
operations was $(0.13) in fiscal 2017 compared to earnings per share of $0.29 in fiscal 2016.
· Net income was $140.7 for fiscal 2017 versus $101.2 million for fiscal 2016. Diluted EPS was
$5.04 for fiscal 2017 compared to $3.52 for fiscal 2016.
Adjusted operating income, adjusted operating margin, adjusted income from continuing operations, and
adjusted diluted EPS from continuing operations as discussed below and on the pages that follow are non
GAAP financial measures as contemplated by SEC Regulation G, Rule 100. These measures
‐
30
Table of Contents
are discussed further, and reconciled to their applicable GAAP
based measures contained in this MD&A
on pages 34, 38 and 39.
Geographic Net Sales Revenue
‐
The following table provides net sales revenue by geographic region, in U.S. Dollars, as a percentage of
net sales revenue, and the year-over-year percentage change in each region .
Fiscal Years Ended
(in thousands)
Sales revenue, net by geographic region
United States
Canada
EMEA
Asia Pacific
Latin America
Total sales revenue, net
the Last Day of February,
2017
(1)
(1)
2016
2018
% of Sales Revenue, net
2018 2017 2016 18/17 17/16
% Change
(2)
$ 1,168,888 $ 1,111,109 $ 1,080,337
57,482
139,911
51,575
63,270
78.5 % 79.0 % 77.6 % 5.2 % 2.8 %
4.1 % 0.8 % 4.4 %
(3.8)%
3.7 % 24.6 % 17.7 %
(2.7)% (36.3)%
4.5 %
$ 1,489,747 $ 1,406,676 $ 1,392,575 100.0 % 100.0 % 100.0 % 5.9 % 1.0 %
4.3 %
9.6 % 10.0 % 8.1 %
4.3 %
2.9 %
60,002
134,546
60,689
40,330
60,504
145,492
75,616
39,247
4.1 %
9.8 %
5.1 %
2.6 %
(1) Fiscal 2017 includes eleven and one-half months of operating results for Hydro Flask, acquired on March 18, 2016. Fiscal
2018 includes a full year of operating results for Hydro Flask.
(2) Sales revenue percentages by segment are computed as a percentage of the related segment’s net sales revenue to total
net sales revenue. All other percentages are computed as a percentage of total net sales revenue.
In fiscal 2018, U.S. sales increased 5.2% compared to fiscal 2017, primarily driven by core business
growth. International sales increased 8.6% compared to fiscal 2017,primarily from growth in EMEA and
Asia Pacific.
In fiscal 2017, U.S. sales grew 2.8% compared to fiscal 2016, primarily driven by the contribution from the
Hydro Flask acquisition. International sales declined 5.3% primarily from declines in EMEA and Latin
America due to foreign currency fluctuations and the re-measurement of our Venezuelan financial
statements in fiscal 2017, which were partially offset by growth in Canada and Asia Pacific.
Comparison of Fiscal 2018 to Fiscal 2017
Consolidated and Segment Net Sales
The following table summarizes the impact that acquisitions, foreign currency and Venezuela re-
measurement had on our net sales revenue by segment:
Year Ended February 28, 2018
(in thousands)
Fiscal 2017 sales revenue, net
Core business
Impact of foreign currency
(1)
Acquisitions
Change in sales revenue, net
Fiscal 2018 sales revenue, net
Total net sales revenue growth
Core business
Impact of foreign currency
Acquisitions
Housewares
418,128
33,467
76
6,148
39,691
457,819
$
$
$
Health & Home
$
632,769
45,937
3,899
-
49,836
682,605
Beauty
355,779 $
(7,661)
1,205
-
(6,456)
349,323 $
$
$
Total
1,406,676
71,743
5,180
6,148
83,071
1,489,747
9.5 %
8.0 %
- %
1.5 %
7.9 %
7.3 %
0.6 %
- %
(1.8)%
(2.2)%
0.3 %
- %
5.9 %
5.1 %
0.4 %
0.4 %
(1)
Includes approximately one-half month of incremental operating results for Hydro Flask, which was acquired on March 18,
2016.
In the above table core business refers to our net sales revenue associated with product lines or brands
after the first twelve months from the date the product line or brand is acquired, excluding the impact
31
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that foreign currency re-measurement had on reported net sales. Net sales revenue from internally
developed brands or product lines is considered core business activity.
Consolidated Net Sales Revenue
Consolidated net sales revenue increased $83.1 million, or 5.9%, to $1,489.7 million for fiscal 2018,
compared to $1,406.7 million for fiscal 2017. The increase was primarily driven by:
·
·
·
a core business increase of $71.7 million, or 5.1%, primarily due to new product introductions,
online customer growth, incremental distribution and growth in international sales;
growth from acquisitions of $6.1 million or 0.4%; and
the favorable impact from foreign currency fluctuations of approximately $5.2 million, or 0.4%.
These factors were partially offset by:
·
·
a decline in the personal care category within Beauty; and
the impact of lower store traffic and soft consumer spending at traditional brick and mortar retail.
Segment Net Sales Revenue
Housewares
Net sales revenue in the Housewares segment increased $39.7 million, or 9.5%, to $457.8 million for
fiscal 2018, compared to $418.1 million for fiscal 2017. The change was primarily driven by:
·
·
a core business increase of $33.5 million, or 8.0%, due to an increase in online sales, incremental
distribution with existing customers, expanded international and U.S. distribution, new product
introductions for both the Hydro Flask and OXO brands, increased marketing investments and
promotional activity, and higher sales in the discount channel; and
growth from acquisitions of $6.1 million, or 1.5%, representing an incremental one-half month of
operating results from Hydro Flask in fiscal 2018, compared to the same period last year.
These factors were partially offset by:
·
·
lower store traffic and soft consumer spending at traditional brick and mortar retail; and
the unfavorable comparative impact of retail pipeline fill and strong sales into the club channel in
the prior year period.
Health & Home
Net sales revenue in the Health & Home segment increased $49.8 million, or 7.9%, to $682.6 million for
fiscal 2018, compared to $632.8 million for fiscal 2017. The change was primarily driven by core business
growth of 7.3%, which benefitted from strong cough/cold/flu incidence along with unseasonably cold fall
and winter weather, compared to below average cough/cold/flu incidence and milder weather in the same
period last year. Growth was also driven by an increase in online sales, incremental distribution and shelf
space gains with existing customers and an increase in international sales. Core business sales
increases were partially offset by lower sales into the club channel and lower royalty revenue. Foreign
currency fluctuations had a favorable impact on total segment sales of approximately $3.9 million, or
0.6%.
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Beauty
Net sales revenue in the Beauty segment decreased $6.5 million, or 1.8%, to $349.3 million for fiscal
2018, compared to $355.8 million for fiscal 2017. The change was primarily driven by a decline in the
personal care category, which was partially offset by solid growth in both retail and professional appliance
sales, particularly to online retail customers. Segment net sales were favorably impacted by foreign
currency fluctuations of approximately $1.2 million, or 0.3%.
Gross Profit Margin
Consolidated gross profit margin for fiscal 2018 increased 0.4 percentage points to 41.8%, compared to
41.4% for fiscal 2017. The increase in consolidated gross profit margin is primarily due to the favorable
impact from growth in our Leadership Brands, a higher margin product mix and the favorable impact from
foreign currency fluctuations. These factors were partially offset by channel mix and higher promotional
spending.
Selling General and Administrative Expense
Our consolidated SG&A ratio increased 0.1 percentage point to 29.2% for fiscal 2018, compared to 29.1%
for fiscal 2017. The increase in consolidated SG&A ratio is primarily due to:
·
·
·
a $3.6 million charge related to the bankruptcy of TRU;
higher overall marketing, advertising and new product development expense in support of our
Leadership Brands; and
an unfavorable impact from foreign currency exchange and forward contract settlements.
These factors were partially offset by:
·
·
·
the favorable comparative impact of a $1.5 million patent litigation charge in the same period last
year;
improved distribution and logistics efficiency and lower outbound freight expense; and
the favorable impact that higher overall sales had on operating leverage.
Asset Impairment Charges
Fiscal 2018
As a result of our interim and annual testing of indefinite-lived trademarks, we recorded non-cash asset
impairment charges of $15.4 million ($13.8 million after tax) in continuing operations. The charges were
related to certain trademarks in our Beauty segment.
Fiscal 2017
As a result of our interim and annual testing of indefinite-lived trademarks, we recorded non-cash asset
impairment charges of $2.9 million ($2.5 million after tax) in continuing operations. The charges were
related to certain trademarks in our Beauty segment.
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Operating income, operating margin, adjusted operating income (non-GAAP), and adjusted
operating margin (non-GAAP) by segment
In order to provide a better understanding of the comparative impact of certain items on operating income,
the tables that follow report the comparative before tax impact of non
cash asset impairment charges,
‐
restructuring charges, the TRU bankruptcy charge, CEO succession costs, acquisition
related expenses,
Venezuelan currency re-measurement related charges, patent litigation charges, amortization of
‐
intangible assets, and non
cash share
based compensation, as applicable, on operating income and
‐
‐
operating margin for each segment and in total for the periods covered below. Adjusted operating income
and adjusted operating margin may be considered non-GAAP financial measures as contemplated by
SEC Regulation G, Rule 100. These measures are discussed further in this MD&A on pages 38 and 39.
Year Ended February 28, 2018
(In thousands)
Operating income, as reported (GAAP)
Asset impairment charges
Restructuring charges
TRU bankruptcy charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
Adjusted operating income (non-GAAP)
(In thousands)
Operating income, as reported (GAAP)
Asset impairment charges
Patent litigation charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
Adjusted operating income (non-GAAP)
(In thousands)
Operating income, as reported (GAAP)
Asset impairment charges
CEO succession costs
Acquisition-related expenses
Venezuelan re-measurement related charge
Patent litigation charge
(4)
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
Adjusted operating income (non-GAAP)
(1)
Beauty
-
220
956
Health & Home
Housewares
$ 89,319 19.5 % $ 62,099 9.1 % $ 17,644 5.1 % $
4.4 %
-
2.0 %
-
- %
2,640
9.9 %
90,495 19.8 % 64,739
1.6 %
0.5 % 11,101
1.3 %
5,721
1.0 %
$ 97,422 21.3 % $ 81,561 11.9 % $ 44,887 12.8 % $
15,447
1,637
-
34,728
5,527
4,632
- %
- %
0.4 %
9.5 %
1.6 %
0.8 %
- %
- %
0.2 %
2,226
4,701
Year Ended February 28, 2017
(1)
-
-
Beauty
Health & Home
Housewares
$ 89,020 21.3 % $ 51,072 8.1 % $ 29,572 8.3 % $
0.8 %
-
- %
1,468
9.1 %
89,020 21.3 % 52,540
1.6 %
0.6 % 13,663
1.4 %
5,449
0.8 %
$ 95,072 22.7 % $ 71,652 11.3 % $ 43,193 12.1 % $
2,900
-
32,472
5,718
5,003
- %
0.2 %
8.3 %
2.2 %
0.9 %
2,643
3,409
- %
- %
Year Ended February 29, 2016
Beauty
Health & Home
-
1,348
698
-
-
Housewares
$ 55,944 18.0 % $ 36,860 5.7 % $ 23,490 5.3 % $
1.4 %
0.4 %
- %
4.3 %
- %
50,156 11.4 %
1.3 %
0.8 %
$ 60,659 19.5 % $ 74,320 11.6 % $ 59,257 13.5 % $
-
- %
2,722
0.4 %
-
0.2 %
- %
-
- % 17,830
57,990 18.7 % 57,412
0.4 % 14,438
2,470
0.4 %
- %
0.4 %
- %
- %
2.8 %
8.9 %
2.2 %
0.4 %
6,000
1,933
-
18,733
-
1,325
1,344
5,751
3,350
Total
169,062
15,447
1,857
3,596
189,962
18,854
15,054
223,870
Total
169,664
2,900
1,468
174,032
22,024
13,861
209,917
Total
116,294
6,000
6,003
698
18,733
17,830
165,558
21,514
7,164
194,236
11.3 %
1.0 %
0.5 %
0.2 %
12.8 %
1.3 %
1.0 %
15.0 %
12.1 %
0.2 %
0.1 %
12.4 %
1.6 %
1.0 %
14.9 %
8.4 %
0.4 %
0.4 %
0.1 %
1.3 %
1.3 %
11.9 %
1.5 %
0.5 %
13.9 %
(1) Fiscal 2017 includes eleven and one-half months of incremental operating results for Hydro Flask, acquired on March 18,
2016. Fiscal 2018 includes a full year of operating results for Hydro Flask.
(2) CEO succession costs incurred in connection with the settlement of a lawsuit with our former CEO in fiscal 2016.
34
Table of Contents
Consolidated
Consolidated operating income was $169.1 million, or 11.3% of net sales, compared to consolidated
operating income of $169.7 million, or 12.1% of net sales, for the same period last year. Fiscal 2018
includes pre-tax non-cash asset impairment charges totaling $15.4 million, a $3.6 million charge related to
the TRU bankruptcy and pre-tax restructuring charges of $1.9 million associated with Project
Refuel. Fiscal 2017 includes pre-tax non-cash asset impairment charges of $2.9 million and a patent
litigation charge of $1.5 million. The effect of these items in both years unfavorably impacted the year-
over-year comparison of operating margin by a combined 1.4 percentage points. The remaining
improvement in consolidated operating margin primarily reflects:
·
·
·
a higher mix of Leadership Brand sales at a higher operating margin;
improved distribution and logistics efficiency and lower outbound freight costs; and
the favorable impact that higher overall net sales had on operating leverage.
These factors were partially offset by higher marketing, advertising and new product development
expense in support of our Leadership Brands and the unfavorable impact from foreign currency exchange
and forward contract settlements.
Consolidated adjusted operating income increased 6.6% to $223.9 million, or 15.0% of net sales,
compared to $209.9 million, or 14.9% of net sales, in the same period last year.
Housewares
The Housewares segment’s operating income was $89.3 million, or 19.5% of segment net sales,
compared to $89.0 million, or 21.3% of segment net sales, for the same period last year. The 1.8
percentage point decrease in segment operating margin is primarily due to:
·
·
·
·
·
higher marketing, advertising and new product development expense;
higher promotional spending;
higher sales in the discount channel;
a $1.0 million charge related to the bankruptcy of TRU; and
a $0.2 million pre-tax restructuring charge.
These factors were partially offset by the favorable margin impact from growth in the Hydro Flask
business, improved distribution and logistics efficiency coupled with lower outbound freight costs, and the
impact of increased operating leverage from overall sales growth.
Segment adjusted operating income increased 2.5% to $97.4 million, or 21.3% of segment net sales,
compared to $95.1 million, or 22.7% of segment net sales, in the same period last year.
Health & Home
The Health & Home segment’s operating income was $62.1 million, or 9.1% of segment net sales,
compared to $51.1 million, or 8.1% of segment net sales, in the same period last year. The 1.0
percentage point increase in segment operating margin is primarily due to:
·
lower legal fee expense and the comparative impact of a $1.5 million patent litigation charge in the
same period last year;
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·
·
·
improved distribution and logistics efficiency and lower outbound freight costs;
lower royalty expense; and
the favorable impact that higher overall net sales had on operating leverage.
These factors were partially offset by:
·
·
·
·
an increase in new product development expense;
higher personnel and incentive compensation costs;
a $2.6 million charge related to the bankruptcy of TRU; and
an increase in product liability expense.
Segment adjusted operating income increased 13.8% to $81.6 million, or 11.9% of segment net sales,
compared to $71.7 million, or 11.3% of segment net sales, in the same period last year.
Beauty
The Beauty segment’s operating income was $17.6 million, or 5.1% of segment net sales, compared to
operating income of $29.6 million, or 8.3% of segment net sales, in the same period last year. The 3.2
percentage point decrease in segment operating margin is primarily due to:
·
·
·
pre-tax non-cash asset impairment charges of $15.5 million, compared to $2.9 million recorded in
the same period last year;
pre-tax restructuring charges of $1.6 million related to Project Refuel; and
the net sales decline in the personal care category and its unfavorable impact on gross margin mix
and operating leverage.
These factors were partially offset by the favorable impact of new product introductions in the appliance
category, lower media advertising expense and improved distribution and logistics efficiency coupled with
lower outbound freight costs.
Segment adjusted operating income increased 3.9% to $44.9 million, or 12.8% of segment net
sales, compared to $43.2 million, or 12.1% of segment net sales, in the same period last year.
Interest Expense
Interest expense was $14.0 million in fiscal 2018 compared to $14.4 million in fiscal 2017. The decrease
in interest expense is due to lower average levels of debt held during the twelve months ended February
28, 2018, partially offset by higher overall average interest rates.
Income Tax Expense
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among other
changes, the Tax Act lowered the U.S. corporate income tax rate from 35% to 21% and established a
modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of
36
Table of Contents
foreign subsidiaries. The rate change is effective at the beginning of calendar year 2018 and, as a result,
we have a blended U.S. federal statutory tax rate of 32.7% for our fiscal year 2018.
As a result of the enactment, we have recorded a provisional tax charge of $17.9 million related to the
one-time remeasurement of our U.S. deferred tax assets and liabilities based on the rates at which they
are expected to reverse in the future, the one-time repatriation tax applied to our undistributed foreign
earnings and the impact of executive compensation that is no longer deductible under the Tax Act. The
ultimate impact may differ from this provisional amount due to additional analysis, changes in
interpretations or assumptions we have made, additional regulatory guidance that may be issued and
actions that we may take as a result of the Tax Act. Any subsequent adjustments to provisional estimates
will be reflected in our income tax provision during one or more periods in fiscal 2019.
The year-over-year comparison of our effective tax rates is impacted by the mix of taxable income in our
various tax jurisdictions, among other factors. Due to our organization in Bermuda and the ownership
structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent
company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis
under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries,
resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases
our overall effective tax rate.
Fiscal 2018 income tax expense as a percentage of income before tax was 17.1% compared to 7.3% in
the same period last year. The increase in our effective tax rate was primarily due to the provisional
charge of $17.9 million related to the Tax Act, which increased our effective tax rate by 11.5 percentage
points. This impact was partially offset by:
·
·
$2.1 million in tax benefits resulting from the recognition of excess tax benefits from share-based
compensation in income tax expense rather than paid in capital due to our adoption of ASU 2016-
09; and
$2.4 million in tax benefits related to the resolution of uncertain tax positions.
37
Table of Contents
Income from continuing operations, diluted EPS from continuing operations, adjusted Income
from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations
(non-GAAP)
In order to provide a better understanding of the impact of certain items on our income and EPS from
continuing operations, the analysis that follows reports the comparative after tax impact of non
cash
‐
asset impairment charges, CEO succession costs, acquisition
related expenses, tax reform, Venezuelan
currency re-measurement related charges, patent litigation charges, the TRU bankruptcy charge,
‐
amortization of intangible assets, and non
cash share
based compensation, as applicable, on income
from continuing operations, and basic and diluted EPS from continuing operations for the periods covered
below.
‐
‐
Year Ended February 28, 2018
Income From Continuing Operations
Diluted Earnings Per Share
Tax
(in thousands, except per share data)
As reported (GAAP)
Tax reform
Asset impairment charges
Restructuring charges
TRU bankruptcy charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
Adjusted (non-GAAP)
Before Tax
$ 155,438 $
-
15,447
1,857
3,596
176,338
18,854
15,054
$ 210,246 $
Tax
Net of Tax Before Tax
26,556 $
(17,939)
1,613
69
204
10,503
850
1,669
13,022 $
128,882 $
17,939
13,834
1,788
3,392
165,835
18,004
13,385
197,224 $
5.70 $
-
0.57
0.07
0.13
6.47
0.69
0.55
7.71 $
Net of Tax
4.73
0.66
0.51
0.07
0.12
6.08
0.66
0.49
7.24
0.97 $
(0.66)
0.06
-
0.01
0.39
0.03
0.06
0.48 $
Weighted average shares of common stock used in computing diluted earnings per share
27,254
Income From Continuing Operations
Diluted Earnings Per Share
Year Ended February 28, 2017
(in thousands, except per share data)
As reported (GAAP)
Asset impairment charges
Patent litigation charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
Adjusted (non-GAAP)
Before Tax
$ 155,717 $
2,900
1,468
160,085
22,024
13,861
$ 195,970 $
Tax
Net of Tax
11,407 $
354
4
11,765
1,538
1,762
15,065 $
144,310 $
2,546
1,464
148,320
20,486
12,099
180,905 $
5.58 $
0.10
0.05
5.74
0.79
0.50
7.03 $
Net of Tax
5.17
0.09
0.05
5.32
0.73
0.44
6.49
0.41 $
0.01
-
0.42
0.06
0.06
0.54 $
Before
Tax
Tax
Weighted average shares of common stock used in computing diluted earnings per share
27,891
Year Ended February 29, 2016
Income From Continuing Operations
Tax
Net of Tax Before Tax
Diluted Earnings Per Share
Tax
(in thousands, except per share data)
As reported (GAAP)
Before Tax
$ 106,013 $
Asset impairment charges
CEO succession costs
Acquisition-related expenses
Venezuelan re-measurement related charges
Patent litigation charge
Subtotal
Amortization of intangible assets
6,000
6,003
698
18,733
17,830
155,277
21,514
13,021 $
688
2,062
2
-
45
15,818
1,187
92,992 $
5,312
3,941
696
18,733
17,785
139,459
20,327
3.69 $
0.21
0.21
0.02
0.65
0.62
5.40
0.75
Net of Tax
3.23
0.18
0.14
0.02
0.65
0.62
4.85
0.71
0.45 $
0.02
0.07
-
-
-
0.55
0.04
Non-cash share-based compensation
Adjusted (non-GAAP)
7,164
$ 183,955 $
753
17,758 $
6,411
166,197 $
0.25
6.40 $
0.03
0.62 $
0.22
5.78
Weighted average shares of common stock used in computing diluted earnings per share
28,749
Our income from continuing operations was $128.9 million for fiscal 2018 compared to $144.3 million for
fiscal 2017, a decrease of 10.7%. Our diluted earnings per share from continuing operations decreased
$0.44 or 8.5%, to $4.73 for fiscal 2018 compared to $5.17 for fiscal 2017.
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Table of Contents
Adjusted income from continuing operations increased $16.3 million, or 9.0%, for fiscal 2018 compared to
fiscal 2017. Adjusted diluted EPS from continuing operations was $7.24 for fiscal 2018 compared to
$6.49 for fiscal 2017. The increase in adjusted income was primarily due to an increase in adjusted
operating income and lower interest expense. The increase in adjusted diluted EPS from continuing
operations was due to increased adjusted income and lower diluted shares outstanding during fiscal
2018.
The tables contained in this MD&A, under the headings “Operating income, operating margin, adjusted
operating income (non-GAAP) and adjusted operating margin (non-GAAP) by segment” and “Income from
continuing operations, diluted EPS from continuing operations, adjusted income from continuing
operations (non-GAAP), and adjusted diluted EPS from continuing operations (non-GAAP),” respectively,
report operating income, operating margin, income from continuing operations and diluted earnings per
share from continuing operations without the impact of non-cash asset impairment charges, CEO
succession costs, acquisition-related expenses, tax reform, Venezuelan currency re-measurement related
charges, patent litigation charges, amortization of intangible assets, and non-cash share-based
compensation for the periods presented, as applicable. These measures may be considered non-GAAP
financial information as set forth in SEC Regulation G, Rule 100. The preceding table and the table on
page 34 reconciles these measures to their corresponding GAAP-based measures presented in our
consolidated statements of income. We believe that adjusted operating income, adjusted operating
margin, adjusted income from continuing operations and adjusted diluted EPS from continuing operations
provide useful information to management and investors regarding financial and business trends relating
to our financial condition and results of operations. We believe that these non-GAAP financial measures,
in combination with the our financial results calculated in accordance with GAAP, provide investors with
additional perspective regarding the impact of such charges on net income and earnings per share. We
also believe that these non-GAAP measures facilitate a more direct comparison of our performance to our
competitors. We further believe that including the excluded charges would not accurately reflect the
underlying performance of the our continuing operations for the period in which the charges are incurred,
even though such charges may be incurred and reflected in the our GAAP financial results in the near
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 our activities. Our adjusted operating
income, adjusted operating margin, adjusted income from continuing operations and adjusted diluted EPS
from continuing operations are not prepared in accordance with GAAP, are 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.
39
Table of Contents
Comparison of Fiscal 2017 to Fiscal 2016
Consolidated and Segment Net Sales
The following table summarizes the impact that acquisitions and foreign currency had on our net sales
revenue by segment:
(in thousands)
Fiscal 2016 sales revenue, net
Core business
Impact of foreign currency
Venezuela re-measurement
Acquisitions
Change in sales revenue, net
Fiscal 2017 sales revenue, net
Total net sales revenue growth
Core business
Impact of foreign currency
Venezuela re-measurement
Acquisitions
Housewares
$
(1)
Year Ended February 28, 2017
(2)
Health & Home
Beauty
$
310,663
2,402
(1,942)
-
107,005
107,465
418,128
$
$
34.6 %
0.8 %
(0.6)%
- %
34.4 %
642,735
(8,257)
(2,421)
-
712
(9,966)
632,769
$
$
(1.6)%
(1.3)%
(0.4)%
- %
0.1 %
439,177 $
(56,853)
(5,339)
(21,206)
-
(83,398)
355,779 $
(19.0)%
(12.9)%
(1.2)%
(4.8)%
- %
Total
1,392,575
(62,708)
(9,702)
(21,206)
107,717
14,101
1,406,676
1.0 %
(4.5)%
(0.7)%
(1.5)%
7.7 %
(1) Fiscal 2017 growth from acquisitions includes eleven and one-half months of incremental operating results for the Hydro
Flask acquisition, acquired on March 18, 2016.
(2) Fiscal 2017 growth from acquisitions includes one month of incremental operating results for the Vicks Vaposteam inhalant
business acquisition, acquired on March 31, 2015.
In the above table core business refers to our net sales revenue associated with product lines or brands
after the first twelve months from the date the product line or brand is acquired, excluding the impact that
foreign currency and Venezuelan currency re-measurement had on reported net sales. Net sales
revenue from internally developed brands or product lines is considered core business activity.
Consolidated Net Sales Revenue
Consolidated net sales revenue increased $14.1 million, or 1.0%, to $1,406.7 million for fiscal 2017,
compared to $1,392.6 million for fiscal 2016. The increase was primarily driven by growth from
acquisitions of $107.7 million, or 7.7%, and was partially offset by the following:
·
a core business decline of $62.7 million, or 4.5%, primarily due to:
o a decrease of approximately $39.6 million, or 2.8%, from our rationalization of lower
margin, commoditized and non-strategic business;
o the unfavorable impact of a weak cough/cold/flu season that was both below average and
below that of the same period last year;
o the impact of lower store traffic and soft consumer spending at traditional brick and mortar
retail along with the impact of inventory rationalization by several key retailers;
·
·
an unfavorable impact of $21.2 million, or 1.5%, from the discontinued use of the official exchange
rate and the adoption of a market-based exchange rate to re-measure our Venezuelan financial
statements in fiscal 2017; and
the unfavorable impact from foreign currency fluctuations of approximately $9.7 million, or 0.7%.
40
Table of Contents
Segment Net Sales Revenue
Housewares
Net sales revenue in the Housewares segment increased $107.5 million, or 34.6%, to $418.1 million for
fiscal 2017, compared to $310.7 million for fiscal 2016. The increase was driven by:
·
·
growth from acquisitions of $107.0 million, or 34.4%, representing eleven and one-half months of
operating results for Hydro Flask; and
core business growth of $2.4 million, or 0.8%, primarily due to growth in online sales at key
customers and new product and category introductions, partially offset by lower order
replenishment from key customers due to lower retail store traffic and the unfavorable comparative
impact from the launch of the kitchen electrics category in fiscal 2016.
These factors were partially offset by the unfavorable impact of net foreign currency fluctuations of
approximately $1.9 million, or 0.6%.
Health & Home
Net sales revenue in the Health & Home segment decreased $10.0 million, or 1.6%, to $632.8 million for
fiscal 2017, compared to $642.7 million for fiscal 2016. The decrease was driven by:
·
·
a core business decline of $8.3 million, or 1.3%, primarily due to a de-emphasis of low margin
hot/cold therapy business and the impact of another weak cough/cold/flu season on thermometry
and humidification replenishment orders, partially offset by growth in air purification and our
seasonal fan and heater categories; and
the unfavorable impact of net foreign currency fluctuations of approximately $2.4 million, or 0.4%.
These factors were partially offset by growth from acquisitions of $0.7 million, or 0.1%, representing
twelve months of contribution from Vicks VapoSteam, compared to eleven months of contribution for fiscal
2016.
Beauty
Net sales revenue in the Beauty segment decreased $83.4 million, or 19.0%, to $355.8 million for fiscal
2017, compared to $439.2 million for fiscal 2016. The decrease was driven by:
·
·
·
a core business decline of $56.9 million, or 12.9%, primarily due to our rationalization of lower
margin, commoditized and non-strategic business and the impact of lower store traffic and soft
consumer spending at traditional brick and mortar retail, along with inventory rationalization by
several key retailers;
the unfavorable impact of net foreign currency fluctuations of approximately $5.3 million, or 1.2%;
and
an unfavorable impact of $21.2 million, or 4.8%, from our discontinued use of the official exchange
rate and our adoption of a market-based exchange rate to re-measure our Venezuelan financial
statements in fiscal 2017.
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Gross Profit Margin
Consolidated gross profit margin for fiscal 2017 increased 3.6 percentage points to 41.4%, compared to
37.8% for fiscal 2016. The increase in consolidated gross profit margin is primarily due to:
·
·
·
·
·
favorable shifts in product mix;
product rationalization efforts;
the impact of a Venezuela inventory impairment charge of $9.1 million recorded in fiscal 2016,
which reduced the comparative period consolidated gross profit margin by 0.6 percentage points;
accretion from the Hydro Flask acquisition, which increased consolidated gross profit margin by
1.6 percentage points; and
reductions in product costs.
These factors were partially offset by the unfavorable impact of net foreign currency fluctuations.
Selling General and Administrative Expense
Our consolidated SG&A ratio increased 0.1 percentage point to 29.1% for fiscal 2017, compared to 29.0%
for fiscal 2016. The increase in consolidated SG&A ratio is primarily due to:
·
·
·
·
the impact of higher compensation costs due to hourly wage increases, increases in share-based
compensation as new three-year performance based incentives entered their third year of
existence and estimated performance factors were adjusted, and the $1.8 million unfavorable
impact of a change in an accounting standard for share-based compensation;
higher advertising expense;
patent litigation expense of $1.5 million; and
the impact within our core business that lower overall net sales had on operating leverage.
These factors were mostly offset by:
·
·
·
improved distribution and logistics efficiency and lower outbound freight costs within our core
business;
lower year-over-year foreign currency exchange losses, partially due to cash flow hedges and $10
million of U.S. Dollar to Euro cross-currency debt swaps; and
the favorable comparative impact of the following items recorded in fiscal 2016:
o a $17.8 million patent litigation charge;
o Venezuela re-measurement related charges of $9.6 million; and
o $6.0 million of CEO succession costs recorded as result of the lawsuit settlement with our
former CEO.
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Asset Impairment charges
Fiscal 2017
As a result of our interim and annual testing of indefinite-lived trademarks, we recorded non-cash asset
impairment charges of $2.9 million ($2.5 million after tax) in continuing operations. The charges were
related to certain trademarks in our Beauty segment.
Fiscal 2016
As a result of our testing of indefinite-lived trademarks, we recorded non-cash asset impairment charges
of $6.0 million ($5.3 million after tax) in continuing operations. These charges were related to certain
trademarks in our Beauty segment.
Operating income, operating margin, adjusted operating income (non-GAAP), and adjusted
operating margin (non-GAAP) by segment
Adjusted operating income and adjusted operating margin may be considered non-GAAP financial
measures as set forth in SEC Regulation G, Rule 100. A reconciliation and explanation of the reasons
why we believe the non-GAAP financial information is useful and the nature and limitations of the non-
GAAP financial measures is furnished in this MD&A on pages 34, 38 and 39.
Consolidated
Consolidated operating income increased 45.9% to $169.7 million for fiscal 2017 compared to $116.3
million for fiscal 2016. Consolidated operating margin was 12.1% in fiscal 2017 compared to 8.4% in fiscal
2016. The increase was driven by:
·
·
·
accretion from the acquisition of Hydro Flask;
the rationalization of low-margin business and lower product costs; and
the favorable comparative impact of the following items recorded in fiscal 2016:
o a $17.8 million patent litigation charge;
o Venezuela re-measurement related charges of $9.6 million; and
o $6.0 million of CEO succession costs recorded as result of the lawsuit settlement with our
former CEO.
These factors were partially offset by:
·
·
·
the unfavorable impact from foreign currency;
higher compensation expense; and
higher advertising expense.
Consolidated adjusted operating income was $209.9 million, or 14.9% of net sales, compared to $194.2
million, or 13.9% of net sales for fiscal 2016.
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Housewares
The Housewares segment’s operating income increased $33.1 million, or 59.2%, to $89.0 million for fiscal
2017 compared to $55.9 million for fiscal 2016. The increase was driven by:
·
·
·
the accretive impact of the Hydro Flask acquisition, which increased the segment operating margin
by 2.9 percentage points;
core business improvements in inbound freight costs; and
product cost savings and channel mix.
These factors were partially offset by:
·
·
·
higher incentive compensation costs;
increased media advertising expense; and
the unfavorable impact of foreign currency fluctuations.
Segment adjusted operating income increased 56.7% to $95.1 million, or 22.7% of segment net sales,
compared to $60.7 million, or 19.5% of segment net sales, in fiscal 2016.
Health & Home
The Health & Home segment’s operating income increased $14.2 million, or 38.6%, to $51.1 million for
fiscal 2017 compared to $36.9 million for fiscal 2016. The increase was driven by the year over year
decrease in patent litigation charges of $16.4 million and CEO succession costs of $2.7 million included in
fiscal 2016. The remaining decrease of $4.9 million was driven by:
·
·
an increase in media advertising to support new product introductions and drive category
awareness; and
the unfavorable impact of foreign currency fluctuations.
These factors were partially offset by a year-over-year increase in gross profit margin driven by lower
product costs and favorable product/customer mix.
Segment adjusted operating income decreased 3.6% to $71.7 million, or 11.3% of segment net sales,
compared to $74.3 million, or 11.6% of segment net sales, in fiscal 2016.
Beauty
The Beauty segment’s operating income increased $6.1 million, or 25.9%, to $29.6 million for fiscal 2017
compared to $23.5 million for fiscal 2016. The increase was driven by the year over year decrease in
asset impairment charges of $3.1 million, and Venezuelan remeasurement related charges and CEO
succession costs totaling $20.6 million in fiscal 2016. The remaining decrease of $17.6 million was driven
by:
·
·
the impact of a change in the rate used to re-measure our Venezuelan financial statements during
fiscal 2017, which had a comparative unfavorable impact on operating income of approximately
$8.4 million;
unfavorable foreign currency fluctuations; and
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·
net sales declines and their unfavorable impact on operating leverage.
These factors were partially offset by:
·
·
·
reduced product costs;
a higher margin sales mix, and
lower incentive compensation expense.
Segment adjusted operating income decreased 27.1% to $43.2 million, or 12.1% of segment net sales,
compared to $59.3 million, or 13.5% of segment net sales, in fiscal 2016.
Interest Expense
Interest expense was $14.4 million in fiscal 2017 compared to $10.6 million in fiscal 2016. The increase in
interest expense is due to:
·
·
higher levels of debt as a result of borrowings used to fund the repurchase of $75.0 million of our
outstanding common stock and the $210.0 million acquisition of Hydro Flask in fiscal 2017; and
higher average interest rates in fiscal 2017 compared to fiscal 2016.
Income Tax Expense
Our fiscal 2017 income tax expense was $11.4 million and our effective tax rate was 7.3%, compared to
$13.0 million and 12.3%, respectively, in fiscal 2016. The year-over-year comparison of our effective tax
rates was impacted by the mix of taxable income in our various tax jurisdictions. Due to our organization
in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly
or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S.
taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned
by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory
tax rates, which decreases our overall effective tax rate.
The fiscal 2017 effective tax rate was also favorably impacted by:
·
·
·
$1.8 million in tax benefits resulting from the recognition of excess tax benefits from share-based
compensation in income tax expense rather than paid in capital due to our adoption of ASU 2016-
09;
$1.6 million in tax benefits related to the resolution of uncertain tax positions; and
tax benefits of $1.5 million in due to the finalization of certain tax returns.
Income from continuing operations, diluted EPS from continuing operations, adjusted Income
from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations
(non-GAAP)
Adjusted income from continuing operations and adjusted diluted EPS from continuing operations may be
considered non-GAAP financial measures as set forth in SEC Regulation G, Rule 100. A reconciliation
and explanation of the reasons why we believe the non-GAAP financial information is
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useful and the nature and limitations of the non-GAAP financial measures is furnished in this MD&A on
pages 38 and 39.
Our income from continuing operations was $144.3 million for fiscal 2017 compared to $93.0 million for
fiscal 2016, an increase of 55.2%. Our diluted EPS from continuing operations increased $1.94, or
60.1%, to $5.17 for fiscal 2017 compared to $3.23 for fiscal 2016.
Adjusted income from continuing operations increased $14.7 million, or 8.8%, for fiscal 2017 compared
to fiscal 2016. Adjusted diluted EPS from continuing operations was $6.49 for fiscal 2017 compared to
$5.78 for fiscal 2016. The increase in adjusted income from continuing operations was primarily due to an
increase in adjusted operating income and lower tax expense, partially offset by higher interest
expense. The increase in adjusted diluted EPS from continuing operations was due to increased adjusted
income and lower diluted shares outstanding during fiscal 2017 .
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Financial Condition, Liquidity and Capital Resources
Selected measures of our liquidity and capital utilization for fiscal 2018 and 2017 are shown below:
(1)
Accounts Receivable Turnover (Days)
Inventory Turnover (Times)
Working Capital (in
thousands)
Current Ratio
Ending Debt to Ending Equity Ratio
Return on Average Equity
(1)
(1)
$
Fiscal Years Ended the Last Day of February,
2018
2017
61.3
3.0
258,222
1.9:1
28.6 %
12.7 %
$
60.4
2.8
267,897
2.0:1
47.6 %
14.8 %
(1) Accounts receivable turnover, inventory turnover and return on average equity computations use 12 month trailing net
sales revenue, cost of goods sold or income from continuing operations 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.
Operating Activities:
Comparison of Fiscal 2018 to Fiscal 2017
Operating activities from continuing operations provided $218.6 million of cash during fiscal 2018
compared to $212.5 million during fiscal 2017. The increase was driven primarily by net favorable
fluctuations in inventory, accounts payable and accrued expenses, as well as higher non-cash charges
during fiscal 2018 compared to fiscal 2017.
Accounts receivable increased $43.8 million to $273.2 million at the end of fiscal 2018, compared to
$229.4 million at the end of fiscal 2017. Accounts receivable turnover increased to 61.3 days from 60.4
days in fiscal 2017.
Inventory decreased $29.4 million to $251.5 million at the end of fiscal 2018, compared to $280.9 million
at the end of fiscal 2017. Inventory turnover was 3.0 times for fiscal 2018 compared to 2.8 times for fiscal
2017.
Working capital was $258.2 million at the end of fiscal 2018, compared to $267.9 million at the end of
fiscal 2017. The decrease in working capital was primarily due to a decrease in inventory and increases
in accounts payable and accrued expenses.
Comparison of Fiscal 2017 to Fiscal 2016
Operating activities from continuing operations provided $212.5 million of cash during fiscal 2017
compared to $170.3 million of cash provided during fiscal 2016. The increase was driven primarily by the
increase in income from continuing operations and net favorable changes in working capital components
during fiscal 2017 compared to fiscal 2016.
Accounts receivable increased $12.2 million to $229.4 million at the end of fiscal 2017, compared to
$217.2 million at the end of fiscal 2016. Accounts receivable turnover decreased to 60.4 days from 60.6
days in fiscal 2016.
Inventory decreased $10.7 million to $280.9 million at the end of fiscal 2017, compared to $291.6 million
at the end of fiscal 2016. Inventory as of February 28, 2017 includes $25.0 million from the Hydro Flask
acquisition. Inventory turnover was 2.8 times for both fiscal 2017 and 2016.
Working capital was $267.9 million at the end of fiscal 2017, compared to $504.3 million at the end of
fiscal 2016. The decrease in working capital was due to the use of $210.0 million in cash held at the end
of fiscal 2016 to fund the Hydro Flask acquisition in March 2016.
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Investing Activities:
Investing activities from continuing operations used cash of $13.6, $224.7, and $59.8 million in fiscal
2018, 2017 and 2016, respectively.
Highlights from Fiscal 2018
· we spent $0.1 million on building improvements, $7.5 million on computers, furniture, software
enhancements, and other equipment, $4.8 million on tooling and production equipment and $1.2
million on the development of new patents.
Highlights from Fiscal 2017
· we spent $0.6 million on building and improvements, $9.2 million on computers, software
implementations and enhancements, furniture and other equipment, $5.5 million on tools, molds
and other capital asset additions, and $1.0 million on the development of new patents; and
· we paid $209.3 million to acquire Hydro Flask.
Highlights from Fiscal 2016
· we spent $6.4 million on building and improvements, $9.4 million on computers, software
implementations and enhancements, $2.5 million on tools, molds and other capital asset additions
and $1.1 million on the development of new patents; and
· we paid $43.2 million to acquire the Vicks VapoSteam inhalant business in the Health & Home
segment.
Financing Activities:
Financing activities used cash of $262.2 and $201.4 million in fiscal 2018 and 2017, respectively, and
provided cash of $90.7 million in fiscal 2016.
Highlights from Fiscal 2018
· we had draws of $521.2 million against our Credit Agreement;
· we repaid $692.5 million drawn against our Credit Agreement;
· we repaid $25.7 million of long-term debt; and
· we repurchased and retired 793,085 shares of common stock at an average price of $92.13 per
share for a total purchase price of $73.1 million through a combination of the settlement of certain
stock awards and open market purchases.
Highlights from Fiscal 2017
· we had draws of $470.9 million against our Credit Agreement;
· we repaid $580.3 million drawn against our Credit Agreement;
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· we repaid $23.8 million of long-term debt; and
· we repurchased and retired 929,017 shares of common stock at an average price of $81.37 per
share for a total purchase price of $75.6 million through a combination of the settlement of certain
stock awards and open market purchases.
Highlights from Fiscal 2016
· we had draws of $802.6 million against our Credit Agreement, including $210 million drawn shortly
before fiscal year end to facilitate the closing of the Hydro Flask acquisition in March 2016;
· we repaid $590.0 million drawn against our Credit Agreement;
· we repaid $21.9 million of long-term debt;
· we issued 276,548 shares of common stock as payment for $15 million in separation
compensation due to our former CEO, and he tendered back 116,012 shares as payment for $12
million in related federal income tax withholding obligations; and
· we repurchased and retired 1,244,090 shares of common stock at an average price of $85.53 per
share for a total purchase price of $106.4 million through a combination of the settlement of certain
stock awards and open market purchases.
Discontinued Operations:
Operating activities from discontinued operations provided cash of $5.6, $16.0 and $16.3 million for fiscal
2018, 2017 and 2016, respectively. Cash provided (used) by discontinued operations for investing
activities was $49.2, ($5.1) and ($3.9) million for fiscal 2018, 2017 and 2016, respectively.
Credit Agreement and Other Debt Agreements
Credit Agreement
We have a credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative
agent, and other lenders that provides for an unsecured total revolving commitment of $1 billion as of
February 28, 2018. The commitment under the Credit Agreement terminates on December 7,
2021. Borrowings accrue interest under one of two alternative methods as described in the Credit
Agreement. With each borrowing against our credit line, we can elect the interest rate method based on
our funding needs at the time. We also incur loan commitment and letter of credit fees under the Credit
Agreement. Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on
a dollar-for-dollar basis. As of February 28, 2018, the outstanding revolving loan principal balance was
$269.4 million and the balance of outstanding letters of credit was $7.1 million. As of February 28, 2018,
the amount available for borrowings under the Credit Agreement was $723.5 million. Covenants in our
debt agreements limit the amount of total indebtedness we can incur. As of February 28, 2018, these
covenants effectively limited our ability to incur more than $516.9 million of additional debt from all
sources, including our Credit Agreement, or $692.1 million in the event a qualified acquisition is
consummated.
Other Debt Agreements
We have an aggregate principal balance of approximately $24.3 million under a loan agreement with the
Mississippi Business Finance Corporation (the “MBFC Loan”). The borrowings were used to fund
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construction of our Olive Branch, Mississippi distribution facility. The remaining loan balance is payable as
follows: $1.9 million on March 1, 2018 through 2022; and $14.8 million on March 1, 2023. Any remaining
outstanding principal and interest is due upon maturity on March 1, 2023.
All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of
its subsidiaries. Our debt agreements require the maintenance of certain key financial covenants, defined
in the table below. Our debt agreements also contain other customary covenants, including, among other
things, covenants restricting or limiting us, except under certain conditions set forth therein, from (1)
incurring debt, (2) incurring liens on its properties, (3) making certain types of investments, (4) selling
certain assets or making other fundamental changes relating to mergers and consolidations, and (5)
repurchasing shares of our common stock and paying dividends. Our debt agreements also contain
customary events of default, including failure to pay principal or interest when due, among others. Our
debt agreements are cross-defaulted to each other. Upon an event of default under our debt agreements,
the holders or lenders may, among other things, accelerate the maturity of any amounts outstanding
under our debt agreements. The commitments of the lenders to make loans to us under the Credit
Agreement are several and not joint. Accordingly, if any lender fails to make loans to us, our available
liquidity could be reduced by an amount up to the aggregate amount of such lender’s commitments under
the Credit Agreement.
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The table below provides the formulas currently in effect under various provisions contained in certain key
financial covenants under our debt agreements:
Applicable Financial Covenant
Credit Agreement and MBFC Loan
Minimum Consolidated Net Worth
None
Interest Coverage Ratio
Maximum Leverage Ratio
(2)
EBIT
÷
Interest Expense
(2)
Minimum Required: 3.00 to 1.00
Total Current and Long Term Debt
÷
[EBITDA + Pro Forma Effect of Acquisitions]
(2)
(3)
Maximum Currently Allowed: 3.50 to 1.00
EBIT:
EBITDA:
Earnings Before Non-Cash Charges, Interest Expense and Taxes
EBIT + Depreciation and Amortization Expense + Share Based
Compensation
Total Capitalization:
Total Current and Long Term Debt + Total Equity
Pro Forma Effect of Acquisitions:
Notes:
For any acquisition, pre-acquisition EBITDA of the acquired business is
included so that the EBITDA of the acquired business included in the
computation equals its twelve month trailing total.
(1) Excluding any fiscal quarter net losses.
(2) Computed using totals for the latest reported four consecutive fiscal quarters.
(3) Computed using the ending balances as of the latest reported fiscal quarter.
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Contractual Obligations
Our contractual obligations and commercial commitments in effect as of the end of fiscal 2018 were:
(1)
(in thousands)
Floating rate debt
Long-term incentive plan
payouts
Interest on floating rate debt
Open purchase orders
Long-term purchase
commitments
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
Total contractual obligations
(2)
$
Total
293,707 $
2 years 3 years 4 years 5 years 5 years
1,900 $ 14,807
1,900 $ 271,300 $
1,900 $
1,900 $
$
2020
2021
2022
2023
After
2019
1 year
11,840
29,011
182,603
5,412
7,625
182,603
4,786
7,569
-
1,642
7,514
-
-
5,873
-
-
429
-
-
1
-
1,033
55,359
39,071
67,685
1,080
-
-
-
38,117
-
681,389 $ 232,684 $ 39,795 $ 36,657 $ 298,622 $ 20,706 $ 52,925
1,033
12,490
14,304
6,237
1,080
-
12,972
6,298
6,270
-
-
12,912
6,411
6,278
-
-
7,914
5,531
4,932
-
-
9,071
6,527
5,851
-
(1) We estimate our future obligations for interest on our floating rate debt by assuming the weighted average interest rates in
effect on each floating rate debt obligation at February 28, 2018 remain constant into the future. This is an estimate, as
actual rates will vary over time. In addition, for the Credit Agreement, we assume that the balance outstanding as of
February 28, 2018 remains the same for the remaining term of the agreement. The actual balance outstanding under the
Credit Agreement may fluctuate significantly in future periods, depending on the availability of cash flow from operations
and future investing and financing considerations.
(2)
In addition to the contractual obligations and commercial commitments in the table above, as of February 28, 2018, we
have recorded a provision for uncertain tax positions of $4.4 million. We are unable to reliably estimate the timing of most
of the future payments, if any, related to uncertain tax positions; therefore, we have excluded these tax liabilities from the
table above.
Off-Balance Sheet Arrangements
We have no existing activities involving special purpose entities or off-balance sheet financing.
Current and Future Capital Needs
Based on our current financial condition and current operations, we believe that cash flows from
operations and available financing sources will continue to provide sufficient capital resources to fund 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 addition, we continue to evaluate acquisition opportunities on a regular
basis. We may finance acquisition activity with available cash, the issuance of shares of common stock,
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. We may also elect to repurchase
additional shares of common stock up to the balance of our current authorization over the next fiscal year,
subject to limitations contained in our debt agreements and based upon our assessment of a number of
factors, including share price, trading volume and general market conditions, working capital
requirements, general business conditions, financial conditions, any applicable contractual limitations, and
other factors, including alternative investment opportunities. For additional information, see Part II, Item
5., “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities” in this report. As of February 28, 2018, the amount of cash and cash equivalents held by our
foreign subsidiaries was $17.2 million, of which, an immaterial amount was held in foreign countries
where the funds may not be readily convertible into other currencies.
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Critical Accounting Policies and Estimates
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
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. We recognize liabilities for uncertain tax positions based on the two-step
process prescribed within GAAP. 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 percent 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.
Customer Credit Risk and Estimates of Credits to be Issued to Customers
Our trade receivables subject us to credit risk, which is evaluated based on changing economic, political
and specific customer conditions. We assess these risks and make provisions for collectability based on
our best estimate of the risks presented and information available throughout the year. The use of
different assumptions may change our estimate of collectability. We extend credit to our customers based
upon an evaluation of the customer’s financial condition and credit history and generally do not require
collateral. Our credit terms generally range between 30 and 90 days from invoice date depending upon
the evaluation of the customer’s financial condition and history, pricing and the relationship with the
customer. We monitor our customers’ credit and financial condition in order to assess whether the
economic conditions have changed and adjust our credit policies with respect to any individual customer
as we determine appropriate. These adjustments may include, but are not limited to, restricting shipments
to customers, reducing credit limits, shortening credit terms, requiring cash payments in advance of
shipment or securing credit insurance.
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 on either 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
subjectivity and uncertainty.
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Valuation of Inventory
We currently record inventory on our balance sheet at average cost, or net realizable value, if it is below
our recorded cost. Determination of net realizable value requires us to estimate the point in time at which
an item's net realizable value drops below its recorded 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.
Goodwill and Indefinite-Lived Intangibles
As a result of acquisitions, we have significant intangible assets on our balance sheet that include
goodwill and indefinite-lived intangibles (primarily trademarks and licenses). Accounting for business
combinations requires the use of estimates and assumptions in determining the fair value of assets
acquired and liabilities assumed in order to properly allocate the purchase price. The estimates of the fair
value of the assets acquired and liabilities assumed are based upon assumptions believed to be
reasonable using established valuation techniques that consider a number of factors, and when
appropriate, valuations performed by independent third-party appraisers.
We consider whether circumstances or conditions exist which suggest that the carrying value of our
goodwill and other long-lived assets might be impaired. If such circumstances or conditions exist, further
steps are required in order to determine whether the carrying value of each of the individual assets
exceeds its fair market value. If analysis indicates that an individual asset’s carrying value does exceed
its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying
value over its fair value. The steps entail significant amounts of judgment and subjectivity.
We complete the annual analysis of the carrying value of our goodwill and other intangible assets during
the fourth quarter of each fiscal year, or more frequently whenever events or changes in circumstances
indicate that their carrying value may not be recoverable.
Considerable management judgment is necessary in reaching a conclusion regarding the reasonableness
of fair value estimates, evaluating the most likely impact of a range of possible external conditions,
considering the resulting operating changes and their impact on estimated future cash flows, determining
the appropriate discount factors to use, and selecting and weighting appropriate comparable market level
inputs.
We continue to monitor our reporting units for any triggering events or other signs of impairment. For both
the goodwill and indefinite-lived intangible assets in its reporting units, the recoverability of these amounts
is dependent upon achievement of our projections and the continued execution of key initiatives related to
revenue growth and improved profitability. The rates used in our projections are management’s estimate
of the most likely results over time, given a wide range of potential outcomes. The assumptions and
estimates used in our impairment testing involve significant elements of subjective judgment and analysis
by our management. While we believe that the assumptions we use are reasonable at the time made,
changes in business conditions or other unanticipated events and circumstances may occur that cause
actual results to differ materially from projected results and this could potentially require future
adjustments to our asset valuations.
Carrying Value of Other Long-Lived Assets
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 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 entail significant amounts of judgment
and subjectivity.
54
Table of Contents
Economic Useful Life of Intangible Assets
We amortize intangible assets, such as licenses, trademarks, customer lists and distribution rights over
their economic useful lives, unless those assets' economic useful lives are indefinite. If an intangible
asset’s economic useful life is deemed 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 fourth
quarter of each fiscal year.
Share-Based Compensation
We account for share-based employee compensation plans under the fair value recognition and
measurement provisions in accordance with applicable accounting standards, which require all share-
based payments to employees, including grants of stock options, restricted stock awards (“RSAs”),
restricted stock units (“RSUs”) and performance restricted stock units (“PSUs”), to be measured based on
the grant date fair value of the awards. The resulting expense is recognized over the periods during
which the employee is required to perform service in exchange for the award. The estimated number of
PSU’s that will ultimately vest requires judgment, and to the extent actual results or updated estimates
differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period
estimates are revised.
Stock options are recognized in the financial statements based on their fair values using an option pricing
model at the date of grant. We use a Black-Scholes option-pricing model to calculate the fair value of
options. This model requires various judgmental assumptions including volatility and expected option life.
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 2 in the accompanying consolidated financial statements for a discussion of any new
accounting pronouncements and the potential impact to our consolidated results of operations and
financial position.
55
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Changes in currency exchange rates and interest rates are our primary financial market risks.
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 fiscal 2018, 2017 and 2016, approximately 13%, 13% and 16%,
respectively, of our net sales revenue was in foreign currencies. These sales were primarily denominated
in British Pounds, Euros, Mexican Pesos, Canadian Dollars, and Venezuelan Bolivars. We make most of
our inventory purchases from the Far East and use the U.S. Dollar for such purchases. In our
consolidated statements of income, exchange gains and losses resulting from the remeasurement of
foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities are recognized in
their respective income tax lines, and all other foreign exchange gains and losses are recognized in
SG&A.
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 hedge against certain foreign currency exchange rate-risk by using a series of forward contracts
designated as cash flow hedges and mark-to-market derivatives to protect against the foreign currency
exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S.
Dollar. Our primary objective in holding derivatives is to reduce the volatility of net earnings and cash
flows, and the net asset value associated with changes in foreign currency exchange rates. Our foreign
currency risk management strategy includes both hedging instruments and derivatives that are not
designated as hedging instruments, which generally have terms of up to 18 months. We do not enter into
any forward exchange contracts or similar instruments for trading or other speculative purposes. We
expect that as currency market conditions warrant, and our foreign denominated transaction exposure
grows, we will continue to execute additional contracts in order to hedge against certain potential foreign
exchange losses. Refer to Note 17 in the accompanying consolidated financial statements for further
information regarding these instruments.
Chinese Renminbi Currency Exchange Uncertainties
A significant portion of the products we sell are purchased from third-party manufacturers in China. The
Chinese Renminbi has fluctuated against the U.S. Dollar in recent years and in fiscal 2018 the Chinese
Renminbi strengthened against the U.S. Dollar by approximately 8.0%. If China’s currency continues to
fluctuate against the U.S. Dollar in the short-to-intermediate term, we cannot accurately predict the impact
of those fluctuations on our results of operations. Accordingly, there can be no assurance that foreign
exchange rates will be stable in the future or that fluctuations in Chinese foreign currency markets will not
have a material adverse effect on our business, results of operations and financial condition.
Interest Rate Risk
Interest on our outstanding debt as of February 28, 2018 is floating, as such, we are exposed to changes
in short-term market interest rates and these changes in rates will impact our net interest
expense. Additionally, our cash and short-term investments generate interest income that will vary based
on changes in short-term interest. Refer to Notes 15 and 17 in the accompanying consolidated financial
statements for further information regarding our interest rate sensitive assets and liabilities.
56
Table of Contents
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% change in certain market-based rates underlying our rate sensitive
financial instruments as of February 28, 2018 and 2017.
February 28, 2018
.
(
in thousands )
Foreign currency contracts - cross-currency debt swap - Euro
Foreign currency contracts - cross-currency debt swap - Pound
Foreign currency contracts - Euro
Foreign currency contracts - Canadian Dollar
Foreign currency contracts - Pound
Foreign currency contracts - Mexican Peso
Interest rate swap
(2)
(2)
(2)
(2)
Carrying
Value
Face or
Notional
Amount
5,280 $
$
6,395 $
$
38,000 $
€
27,750 $
$
19,500 $
£
$
20,000 $
$ 100,000 $
Fair
Value
Estimated
Change in
Fair Value
(549)
(696)
(4,709)
(2,390)
(2,713)
(116)
(910)
(5,488) $
(6,960) $
(1,218) $
479 $
(457) $
5 $
2,481 $
(5,488) $
(6,960) $
(1,218) $
479 $
(457) $
5 $
2,481 $
(1)
(in thousands)
Fixed rate long-term debt
Foreign currency contracts - cross-currency debt swap
Foreign currency contracts - Euro
Foreign currency contracts - Canadian Dollar
Foreign currency contracts - Pound
Foreign currency contracts - Mexican Peso
(2)
(2)
(2)
(2)
February 28, 2017
Face or
Notional
Amount
$
$
€
$
£
$
20,000 $
10,000 $
27,500 $
24,000 $
13,500 $
59,600 $
Carrying
Value
(19,763) $
(9,295) $
727 $
187 $
548 $
(47) $
Fair
Value
(19,858) $
(9,295) $
727 $
187 $
548 $
(47) $
Estimated
Change in
Fair Value
247
(929)
(2,944)
(2,178)
(1,686)
(318)
(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) Appreciation in the value of the U.S. Dollar would result in an increase in the fair value of the related foreign currency
contracts.
The table above is for risk analysis purposes and does not purport to represent actual losses or gains in
fair value that we could 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 .
57
Table of Contents
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
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 28, 2018 and February 28, 2017
Consolidated Statements of Income for each of the years in the three-year period ended
February 28, 2018
Consolidated Statements of Comprehensive Income for each of the years in the three-
year period ended February 28, 2018
Consolidated Statements of Stockholders' Equity for each of the years in the three-year
period ended February 28, 2018
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended February 28, 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for each of the years in the three-year
period ended February 28, 2018
All other schedules are omitted as the required information is included in the consolidated financial
statements or is not applicable.
58
59
60
62
63
64
65
66
67
102
Table of Contents
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 is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. 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 internal control over financial reporting, including the
possibility that misstatements may not be prevented or detected. Furthermore, the effectiveness of
internal controls may become inadequate because of future changes in conditions, or variations in the
degree of compliance with our policies or procedures.
Our management assesses the effectiveness of our internal control over financial reporting using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
the 2013 Internal Control-Integrated Framework. Based on our assessment, we concluded that our
internal control over financial reporting was effective as of February 28, 2018.
Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on the
effectiveness of our internal control over financial reporting. Their report appears on the following page.
59
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Helen of Troy Limited
Opinion
on
internal
control
over
financial
reporting
We have audited the internal control over financial reporting of Helen of Troy Limited and subsidiaries (the “Company”) as
of February 28, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of February 28, 2018, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended February 28, 2018,
and our report dated April 30, 2018 expressed an unqualified opinion on those financial statements.
Basis
for
opinion
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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition
and
limitations
of
internal
control
over
financial
reporting
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 controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ GRANT THORNTON LLP
Dallas, Texas
April 30, 2018
60
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Helen of Troy Limited
Opinion
on
the
financial
statements
We have audited the accompanying consolidated balance sheets of Helen of Troy Limited and
subsidiaries (the “Company”) as of February 28, 2018 and 2017, the related consolidated statements of
income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the
period ended February 28, 2018, and the related notes and schedule (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of February 28, 2018 and 2017, and the results of its operations and
its cash flows for each of the three years in the period ended February 28, 2018, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of February
28, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated
February 28, 2018 expressed an unqualified opinion thereon.
Basis
for
opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2008.
Dallas, Texas
April 30, 2018
61
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except shares and par value)
Assets
Assets, current:
Cash and cash equivalents
Receivables - principally trade, less allowances of $5,309 and $5,560
Inventory
Prepaid expenses and other current assets
Income taxes receivable
Current assets related to discontinued operations
Total assets, current
Property and equipment, net of accumulated depreciation of $115,202 and $102,153
Goodwill
Other intangible assets, net of accumulated amortization of $167,354 and $148,673
Deferred tax assets, net
Other assets, net of accumulated amortization of $2,022 and $1,930
Non-current assets related to discontinued operations
Total assets
Liabilities and Stockholders' Equity
Liabilities, current:
Accounts payable, principally trade
Accrued expenses and other current liabilities
Long-term debt, current maturities
Current liabilities related to discontinued operations
Total liabilities, current
Long-term debt, excluding current maturities
Deferred tax liabilities, net
Other liabilities, noncurrent
Non-current liabilities related to discontinued operations
Total liabilities
Commitments and contingencies
Stockholders' equity:
Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares;
none issued
Common stock, $0.10 par. Authorized 50,000,000 shares; 26,575,634 and
27,028,665 shares
issued and outstanding
Additional paid in capital
Accumulated other comprehensive income
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
See
accompanying
notes
to
consolidated
financial
statements.
62
February 28,
2018
February 28,
2017
$
20,738
273,168
251,511
9,545
349
-
555,311
23,848
229,416
280,877
9,668
2,242
10,027
556,078
123,503
602,320
302,915
16,654
20,617
-
1,621,320
126,502
602,320
336,004
1,955
1,110
189,127
$ 1,813,096
$
129,341
165,864
1,884
-
297,089
287,985
7,096
14,691
-
606,861
105,652
148,098
24,404
11,213
289,367
461,211
20,091
17,342
4,319
792,330
-
-
2,658
230,676
631
780,494
1,014,459
1,621,320
2,703
218,760
1,173
798,130
1,020,766
$ 1,813,096
$
$
$
$
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data)
Sales revenue, net
Cost of goods sold
Gross profit
Selling, general and administrative expense ("SG&A")
Asset impairment charges
Restructuring charges
Operating income
Nonoperating income, net
Interest expense
Income before income tax
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Earnings (loss) per share - basic:
Continuing operations
Discontinued operations
Total earnings per share - basic
Earnings (loss) per share - diluted:
Continuing operations
Discontinued operations
Total earnings per share - diluted
Weighted average shares of common stock used in
computing earnings per share:
Basic
Diluted
See
accompanying
notes
to
consolidated
financial
statements.
63
$
$
$
$
$
$
Fiscal Years Ended the Last Day of February,
2017
$ 1,406,676
824,119
582,557
2018
1,489,747
867,646
622,101
2016
1,392,575
866,841
525,734
$
435,735
15,447
1,857
169,062
327
(13,951)
155,438
26,556
128,882
(84,436)
44,446
4.76
(3.12)
1.64
4.73
(3.10)
1.63
$
$
$
$
$
409,993
2,900
-
169,664
414
(14,361)
155,717
11,407
144,310
(3,621)
140,689
5.24
(0.13)
5.11
5.17
(0.13)
5.04
$
$
$
$
$
403,440
6,000
-
116,294
299
(10,581)
106,012
13,021
92,991
8,237
101,228
3.29
0.29
3.58
3.23
0.29
3.52
27,077
27,254
27,522
27,891
28,273
28,749
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
Income from continuing operations
Income (loss) from discontinued
operations
Other comprehensive income
Cash flow hedge activity - interest rate
swaps
Changes in fair market value
Settlements reclassified to income
Subtotal
Before
Tax
2018
Tax
Fiscal Years Ended the Last Day of February,
2017
Net of
Tax
Before
Tax
Tax
Net of
Tax
Before
Tax
2016
Tax
$ 155,438 $ (26,556) $ 128,882 $ 155,717 $ (11,407) $ 144,310 $ 106,012 $ (13,021) $
Net of
Tax
92,991
(133,811) 49,375
(84,436)
(5,828)
2,207
(3,621)
13,806
(5,569)
8,237
2,481
-
2,481
(776)
-
(776)
1,705
-
1,705
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cash flow hedge activity - foreign
currency contracts
Changes in fair market value
Settlements reclassified to income
Subtotal
Total other comprehensive income (loss)
$
Comprehensive income
1,758
(4,364)
(2,606)
(125)
1,664
(923)
741
741
21,502 $ 22,402 $ 43,904 $ 150,640 $ (9,443) $ 141,197 $ 120,593 $ (18,624) $ 101,969
1,825
(1,317)
508
508
1,978
(1,203)
775
775
2,205
(1,454)
751
751
1,303
(3,550)
(2,247)
(542)
(314)
280
(34)
(34)
(455)
814
359
(417)
(380)
137
(243)
(243)
See
accompanying
notes
to
consolidated
financial
statements.
64
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(in thousands)
Common stock shares
Balances, beginning of period
Exercise of stock options
Restricted share-based compensation
Vesting of performance awards
Issuance of common stock in connection with employee stock
purchase plan
Common stock repurchased and retired
Balances, end of period
Common stock
Balances, beginning of period
Exercise of stock options
Restricted share-based compensation
Vesting of performance awards
Issuance of common stock in connection with employee stock
purchase plan
Common stock repurchased and retired
Balances, end of period
Paid in capital
Balances, beginning of period
Cumulative effect of accounting change
Stock option share-based compensation
Exercise of stock options, including tax benefits of $0, $0 and
$1,581
Restricted share-based compensation, including tax benefits of $0,
$0 and $1,894
Issuance of common stock in connection with employee stock
purchase plan
Common stock repurchased and retired
Balances, end of period
Accumulated other comprehensive income
Balances, beginning of period
Cash flow hedge activity - interest rate swaps, net of tax
Cash flow hedge activity - foreign currency, net of tax
Balances, end of period
Retained earnings
Balances, beginning of period
Cumulative effect of accounting change
Net income
Common stock repurchased and retired
Balances, end of period
Total stockholders' equity
See
accompanying
notes
to
consolidated
financial
statements.
65
$
$
$
$
$
$
$
$
$
Fiscal Years Ended the Last Day of February,
2018
2017
2016
27,029
126
48
150
16
(793)
26,576
2,703
12
5
15
2
(79)
2,658
218,760
-
2,658
$
$
$
27,735
170
21
-
32
(929)
27,029
2,774
17
2
-
3
(93)
2,703
28,488
178
285
-
28
(1,244)
27,735
2,849
18
28
-
3
(124)
2,774
$
$
198,077
588
3,194
$ 179,934
-
3,513
6,546
7,288
8,304
4,978
12,304
21,836
1,525
(3,791)
230,676
1,173
1,705
(2,247)
631
798,130
-
44,446
(62,082)
780,494
$
$
$
$
$
2,487
(5,178)
218,760
1,924
(17,434)
$ 198,077
665
-
508
1,173
$
$
(76)
-
741
665
728,527
(856)
140,689
(70,230)
798,130
$ 721,858
-
101,228
(94,559)
$ 728,527
1,014,459
$ 1,020,766
$ 930,043
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash provided (used) by operating activities:
Net income
Income (loss) from discontinued operations
Income from continuing operations
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization
Amortization of financing costs
Provision for doubtful receivables
Non-cash share-based compensation
Non-cash intangible asset impairment charges
Non-cash Venezuelan re-measurement related charges
Gain on the sale or disposal of property and equipment
Deferred income taxes and tax credits
Changes in operating capital, net of effects of acquisition of businesses:
Receivables
Inventories
Prepaid expenses and other current assets
Other assets and liabilities, net
Accounts payable
Accrued expenses and other current liabilities
Accrued income taxes
Net cash provided by operating activities - continuing operations
Net cash provided by operating activities - discontinued operations
Net cash provided by operating activities
Cash provided (used) by investing activities:
Capital and intangible asset expenditures
Proceeds from the sale of property and equipment
Payments to acquire businesses, net of cash acquired
Net cash used by investing activities - continuing operations
Net cash provided (used) by investing activities - discontinued operations
Net cash provided (used) by investing activities
Cash provided (used) by financing activities:
Proceeds from line of credit
Repayment of line of credit
Repayment of long-term debt
Payment of financing costs
Proceeds from share issuances under share-based compensation plans
Payment of tax obligations resulting from cashless share award settlements
Payment of tax obligations resulting from cashless share settlement of
severance obligation
Payments for repurchases of common stock
Net cash provided (used) by financing activities - continuing operations
Net cash provided by financing activities - discontinued operations
Net cash provided (used) by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning balance
Cash and cash equivalents, ending balance
Less: Cash and cash equivalents of discontinued operations, ending balance
Cash and cash equivalents of continuing operations, ending balance
Supplemental cash flow information:
Interest paid
Income taxes paid, net of refunds
Value of common stock received as exercise price of options
See
accompanying
notes
to
consolidated
financial
statements.
$
$
$
$
66
Fiscal Years Ended the Last Day of February
2017
2016
2018
$
44,446 $
(84,436)
128,882
140,689 $
(3,621)
144,310
101,228
8,237
92,991
33,730
887
1,066
15,054
15,447
-
331
21,264
(44,818)
29,366
(383)
(16,728)
23,689
12,190
(1,368)
218,609
5,598
224,207
(13,605)
13
-
(13,592)
49,226
35,634
521,200
(692,500)
(25,700)
-
7,658
(7,053)
-
(65,795)
(262,190)
-
(262,190)
36,175
706
2,277
13,861
2,900
-
197
(7,499)
(6,592)
17,161
(1,908)
(814)
6,299
8,894
(3,476)
212,491
16,010
228,501
(15,507)
32
(209,267)
(224,742)
(5,112)
(229,854)
470,900
(580,300)
(23,800)
(2,299)
9,734
(595)
-
(75,000)
(201,360)
-
(201,360)
(2,349)
23,087
20,738
-
20,738 $
(202,713)
225,800
23,087
(761)
23,848 $
34,889
651
223
7,164
6,000
17,441
84
(2,384)
(3,437)
(14,896)
(2,224)
9,957
3,949
18,673
1,180
170,263
16,282
186,545
(16,676)
7
(43,150)
(59,819)
(3,927)
(63,746)
802,600
(590,000)
(21,900)
(19)
12,025
-
(12,000)
(100,000)
90,706
-
90,706
213,505
12,295
225,800
(1,664)
227,464
13,543 $
6,081 $
141 $
9,978 $
15,950 $
118 $
13,990
16,591
257
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( in thousands of U.S. Dollars, except share and per share data, unless indicated otherwise )
Note 1 – Summary of Significant Accounting Policies and Related Information
General
When used in these notes, unless otherwise indicated or the context suggests otherwise, references to
“the Company”, “our Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its
subsidiaries. We refer to our common shares, par value $0.10 per share, as “common stock.” References
to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S.
generally accepted accounting principles. References to “ASU” refer to the codification of GAAP in the
Accounting Standards Updates issued by the FASB. References to “ASC” refer to the codification of
GAAP in the Accounting Standards Codification issued by the FASB.
We incorporated as Helen of Troy Corporation in Texas in 1968 and were reorganized as Helen of Troy
Limited in Bermuda in 1994. We are a global designer, developer, importer, marketer, and distributor of
an expanding portfolio of brand-name consumer products. As of February 28, 2018, we operated three
segments: Housewares, Health & Home, and Beauty. Our Housewares segment provides a broad range
of innovative consumer products for the home. Product offerings include food preparation tools and
storage containers; cleaning, bath and garden tools and accessories; infant and toddler care products;
and insulated beverage and food containers. The Health & Home segment focuses on healthcare devices
such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems;
and small home appliances such as portable heaters, fans, air purifiers, and insect control devices. Our
Beauty segment products include electric hair care, beauty care and wellness appliances; grooming tools
and accessories; and liquid-, solid- and powder-based personal care and grooming products.
On December 20, 2017, we completed the divestiture of the Nutritional Supplements segment through the
sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC. The results of the Nutritional
Supplements operations have been reported as discontinued operations for all periods presented in the
consolidated financial statements. For more information see Note 4 to the accompanying consolidated
financial statements. All other footnotes present results from continuing operations.
Our business is seasonal due to different calendar events, holidays and seasonal weather patterns.
Historically, our highest sales volume and operating income occur in our third fiscal quarter ending
November 30
China, Mexico and the United States.
. We purchase our products from unaffiliated manufacturers, most of which are located in
th
The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the amounts reported in our consolidated financial statements and
accompanying notes. Actual results may differ materially from those estimates.
Our consolidated financial statements are prepared in United States (“U.S.”) Dollars. All intercompany
accounts and transactions are eliminated in consolidation.
We have reclassified, combined or separately disclosed certain amounts in the prior years’
consolidated financial statements and accompanying footnotes, including reclassifications for
discontinued operations, to conform to the current year’s presentation.
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Our significant accounting policies include:
Cash and cash equivalents
Cash equivalents include all highly liquid investments with an original maturity of three months or less. We
maintain cash and cash equivalents at several financial institutions, which at times may not be federally
insured or may exceed federally insured limits. We have not experienced any losses in such accounts
and believe we are not exposed to any significant credit risks on such accounts. We consider money
market accounts to be cash equivalents.
Receivables
Our receivables are comprised of trade credit granted to customers, primarily in the retail industry, offset
by two valuation reserves: an allowance for doubtful receivables and an allowance for sales returns. Our
allowance for doubtful receivables reflects our best estimate of probable losses, determined principally
based on historical experience and specific allowances for known at-risk accounts. Our policy is to write
off receivables when we have determined they will no longer be collectible. Write-offs are applied as a
reduction to the allowance for doubtful accounts and any recoveries of previous write-offs are netted
against bad debt expense in the period recovered. Our allowance for sales returns reflects our best
estimate of future customer returns, determined principally based on historical experience and specific
allowances for known pending returns.
We have a significant concentration of credit risk with two major customers at February 28, 2018
representing approximately 19% and 11% of gross trade receivables, respectively. In addition, as of
February 28, 2018 and 2017, approximately 48% and 44%, respectively, of our gross trade receivables
in each year were due from our five top customers.
Foreign currency transactions and related derivative financial instruments
The U.S. Dollar is the functional currency for the Company and all of its subsidiaries; therefore, we do not
have a translation adjustment recorded through accumulated other comprehensive income. All our non-
U.S. subsidiaries' transactions involving other currencies have been re-measured in U.S. Dollars using
exchange rates in effect on the date each transaction occurred. In our consolidated statements of income,
exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable,
deferred tax assets, and deferred tax liabilities are recognized in their respective income tax lines and all
other foreign exchange gains and losses are recognized in SG&A. 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 cash flow hedges,
which requires these derivatives to 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 comprehensive income, depending on the type of hedging instrument and the
effectiveness of the hedges. We evaluate all hedging transactions each quarter to determine that they
remain effective. Any material ineffectiveness is recorded as part of SG&A in our consolidated
statements of income.
Inventory and cost of goods sold
Our inventory consists almost entirely of finished goods. We currently record inventory on our
consolidated balance sheets at average cost, or net realizable value, if it is below our recorded cost. Our
average costs include the amounts we pay manufacturers 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 acquiring inventory, as applicable.
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General and administrative expenses in inventory include all the expenses of operating our sourcing
activities and expenses incurred for production monitoring, product design, engineering, and
packaging. We charged $43.2, $41.7, and $39.2 million of such general and administrative expenses to
inventory during fiscal 2018, 2017 and 2016, respectively. We estimate that $11.8 and $12.8 million of
general and administrative expenses directly attributable to the procurement of inventory were included in
our inventory balances on hand at February 28, 2018 and 2017, respectively.
The “Cost of goods sold” line item in the consolidated statements of income is comprised of the book
value of inventory sold to customers during the reporting period. When circumstances dictate that we use
net realizable value as the basis for recording inventory, we base our estimates on expected future selling
prices less expected disposal costs.
For fiscal 2018, 2017 and 2016, finished goods purchased from vendors in the Far East comprised
approximately 74%, 71% and 70%, respectively, of finished goods purchased. During fiscal 2018, we had
one vendor who fulfilled approximately 11% of our product requirements. Our top two manufacturers
combined fulfilled approximately 19% of our product requirements. Over the same period, our top five
suppliers fulfilled approximately 34% of our product requirements.
Property and equipment
These assets are stated at cost. Depreciation is recorded 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 where allowed by
tax laws.
License agreements, trademarks, patents, and other intangible assets
A significant portion of our sales are made subject to trademark license agreements with various
licensors. Our license agreements are reported on our consolidated balance sheets at cost, less
accumulated amortization. The cost of our license agreements represent 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. Certain licenses have extension terms that may require additional payments to the licensor as
part of the terms of renewal. We capitalize costs incurred to renew or extend the term of a license
agreement and amortize such costs on a straight-line basis over the remaining term or economic life of
the agreement, whichever is shorter. Royalty payments are not included in the cost of license
agreements. Royalty expense under our license agreements is recognized as incurred and is included in
our consolidated statements of income in SG&A. Net sales revenue subject to trademark license
agreements requiring royalty payments comprised approximately 45%, 44% and 45% of consolidated net
sales revenue for fiscal 2018, 2017 and 2016, respectively. During fiscal 2018, two license agreements
accounted for net sales revenue subject to royalty payments of approximately 14% and 13% of
consolidated net sales, respectively. No other license agreements had associated net sales revenue
subject to royalty payments that accounted for 10% or more of consolidated net sales revenue.
We also sell products under trademarks and brand assets that we own. Trademarks and brand assets
that we acquire from other entities are generally recorded on our consolidated balance sheets based upon
the appraised fair value of the acquired asset, net of any accumulated amortization and impairment
charges. Costs associated with developing trademarks internally are recorded as expenses in the period
incurred. In certain instances where trademarks or brand assets have readily determinable useful lives,
we amortize their costs on a straight-line basis over such lives. In most instances, we have determined
that such acquired assets have an indefinite useful life. In these cases, no amortization is
recorded. Patents acquired through acquisition, if material, are recorded on our consolidated balance
sheets based upon the appraised value of the acquired patents and amortized over the remaining life of
the patent. Additionally, we incur certain costs in connection with the design
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and development of products to be covered by patents, which are capitalized as incurred and amortized
on a straight-line basis over the life of the patent in the jurisdiction filed, typically 14 years.
Other intangible assets include customer lists, distribution rights, patent rights, and non-compete
agreements that we acquired. These are recorded on our consolidated balance sheets based upon the
fair value of the acquired asset and amortized on a straight-line basis over the remaining life of the asset
as determined either through outside appraisal or by the term of any controlling agreements.
Goodwill, intangible and other long-lived assets and related impairment testing
Goodwill is recorded as the difference, if any, between the aggregate consideration paid and the fair value
of the net tangible and intangible assets received in the acquisition of a business. We evaluate goodwill
at the reporting unit level (operating segment or one level below an operating segment). 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.
We complete our analysis of the carrying value of our goodwill and other intangible assets annually, or
more frequently, whenever events or changes in circumstances indicate their carrying value may not be
recoverable. If such circumstances or conditions exist, further steps are required in order to determine
whether the carrying value of each of the individual assets exceeds its fair market value. If the analysis
indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to
record a loss equal to the excess of the individual asset’s carrying value over its fair value. These steps
entail significant amounts of judgment and subjectivity.
Our annual impairment testing for goodwill and indefinite-lived assets had historically occurred in the first
quarter of our fiscal year. In December 2016, we elected to change our annual impairment testing to the
fourth quarter of our fiscal year.
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
indefinite, that asset is not amortized. We review the economic useful lives of our intangible assets at
least annually.
Intangible assets consist primarily of goodwill, license agreements, trademarks, brand assets, customer
lists, distribution rights, patents, and patent licenses. For certain intangible assets subject to amortization,
we use the straight-line method over appropriate periods ranging from 4 to 30 years.
Warranties
We allow for warranty against defects in material and workmanship for periods ranging from two to five
years. We estimate our warranty accrual using our historical experience and believe that this is the most
reliable method by which we can estimate the liability. The following table summarizes the activity in our
accrual for the past two fiscal years:
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ACCRUAL FOR WARRANTY RETURNS
(in thousands)
Beginning balance
Additions to the accrual
Reductions of the accrual - payments and credits issued
Ending balance
Financial instruments
Fiscal Years Ended
2018
2017
$
$
20,517 $
48,414
(46,486)
22,445 $
19,418
46,980
(45,881)
20,517
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
16 to these consolidated financial statements for our assessment of the fair value of our long-term debt.
Income taxes and uncertain tax positions
The provision for income tax expense is calculated on reported income before income taxes based on
current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from
those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be
included in the determination of taxable income at different times from when the items are reflected in the
financial statements. Deferred tax balances reflect the effects of temporary differences between the
financial statement carrying amounts of assets and liabilities and their tax bases, as well as from net
operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year
taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and
require certain estimates and assumptions to determine whether it is more likely than not that all or a
portion of the benefit will not be realized. The recoverability of these future tax deductions and credits is
determined by assessing the adequacy of future expected taxable income from all sources, including the
future reversal of existing taxable temporary differences, taxable income in carryback years, estimated
future taxable income and available tax planning strategies. Should a change in facts or circumstances
lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust
the related valuation allowance in the period that the change in facts and circumstances occurs, along
with a corresponding increase or decrease in income tax expense.
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information
available at the reporting date. To be recognized in the financial statements, the tax position must meet
the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority
based on technical merits assuming the tax authority has full knowledge of all relevant information. For
positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit that
meets the more-likely-than-not threshold to be sustained. We periodically evaluate these tax positions
based on the latest available information. For tax positions that do not meet the threshold requirement, we
record liabilities for unrecognized tax benefits as a tax expense or benefit in the period recognized or
reversed and disclose as a separate liability in our financial statements, including related accrued interest
and penalties.
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 revenue is comprised of gross revenues less estimates of expected
returns, trade discounts and customer allowances, which include incentives such as advertising
discounts, volume rebates and off-invoice markdowns. Such deductions are recorded during the period
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the related revenue is recognized. Sales and value added taxes collected from customers and remitted to
governmental authorities are excluded from net sales revenue reported in the consolidated financial
statements.
Consideration granted to customers
We offer our customers certain incentives in the form of volume rebates, product markdown allowances,
trade discounts, cash discounts, slotting fees, and other similar arrangements. These programs are
generally recorded as reductions of net sales revenue. In instances where the customer provides us with
proof of advertising performance, reductions in amounts received from customers under cooperative
advertising programs are expensed in our consolidated statements of income in SG&A. Customer
cooperative advertising incentives included in SG&A were $19.9, $18.4 and $19.4 million for fiscal 2018,
2017 and 2016, respectively.
Advertising
Advertising costs include cooperative advertising discussed above, traditional and digital media
advertising and production expenses, and expenses associated with other promotional product
messaging and consumer awareness programs. Advertising costs are expensed in the period in which
they are incurred and included in our consolidated statements of income in SG&A. We incurred total
advertising costs, including amounts paid to customers for cooperative media and print advertising, of
$61.4, $57.7 and $54.2 million during fiscal 2018, 2017 and 2016, respectively.
Research and development expense
Expenditures for research activities relating to product design, development and improvement are
charged to expense as incurred and included in our consolidated statements of income in SG&A. We
incurred total research and development expenses of $13.5, $11.8 and $11.6 million during fiscal 2018,
2017 and 2016, respectively.
Shipping and handling revenue and expense
Shipping and handling revenue and expense are included in our consolidated statements of income in
SG&A. This includes distribution center costs, third-party logistics costs and outbound transportation costs
we incur. Our net expense for shipping and handling was $78.1, $79.4 and $82.4 million during fiscal
2018, 2017 and 2016, respectively.
Share-based compensation plans
We account for share-based employee compensation plans under the fair value recognition and
measurement provisions in accordance with applicable accounting standards, which require all share-
based payments to employees, including grants of stock options, restricted stock awards (“RSAs”),
restricted stock units (“RSUs”), and performance stock units (“PSUs”), to be measured based on the grant
date fair value of the awards. The resulting expense is recognized over the periods during which the
employee is required to perform service in exchange for the award. The estimated number of PSU’s that
will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our
current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are
revised. All share-based compensation expense is recorded net of forfeitures in our consolidated
statements of income.
Stock options are recognized in the financial statements based on their fair values using an option-pricing
model at the date of grant. We use a Black-Scholes option-pricing model to calculate the fair
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value of options. This model requires various judgmental assumptions including volatility, forfeiture rates
and expected option life.
See Note 10 to these consolidated financial statements for more information on our share-based
compensation plans.
Note 2 – New Accounting Pronouncements
Not Yet Adopted
In February 2018, the FASB issued ASU No. 2018-02, Reclassification
of
Certain
Tax
Effects
from
Accumulated
Other
Comprehensive
Income
(Topic
220)
. The amendments in ASU 2018-02 allow a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax
effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this ASU also require
certain disclosures about stranded tax effects. The ASU will be effective for us on March 1, 2019. Early
adoption in any period is permitted. We are currently evaluating the impact this guidance may have on
our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives
and
Hedging
–Targeted
Improvements
to
Accounting
for
Hedging
Activities
(Topic
815)
, which amends and simplifies hedge accounting with the
intent of better aligning financial reporting for hedging relationships with an entity's risk management
activities. The ASU is effective for us on March 1, 2019. We are currently evaluating the impact this
guidance may have on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation
–
Stock
Compensation
(Topic
718):
Scope
of
Modification
Accounting
(Topic
718).
This update amends the scope of modification accounting
surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the
various types of changes which would trigger modification accounting for share-based payment awards.
ASU 2017-09 is effective for us on March 1, 2018. We have concluded that the adoption of this guidance
will not have a material impact on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Accounting
for
Income
Taxes:
Intra–Entity
Asset
Transfers
of
Assets
Other
Than
Inventory
(Topic
740).
ASU 2016-16 amends accounting guidance for
intra-entity transfers of assets other than inventory to require the recognition of taxes when the transfer
occurs. The amendment will be effective for us on March 1 2018. A modified retrospective approach will
be required for transition to the new guidance, with a cumulative-effect adjustment consisting of the net
impact from (1) the write-off of any unamortized expense previously deferred and (2) recognition of any
previously unrecognized deferred tax assets, net of any valuation allowance. The new guidance does not
include any specific new disclosure requirements. We have concluded that the adoption of this guidance
will not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases
(Topic
842)
and
updated
in
February
2018.
ASU 2016-02 will require lessees to recognize on their balance sheets “right-of-use assets” and
corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases
will be subject to this treatment except leases that meet the definition of a “short-term lease.” For expense
recognition, the dual model requiring leases to be classified as either operating or finance leases has
been retained from the prior standard. Operating leases will result in straight-line expense while finance
leases will result in a front-loaded expense pattern. Classification will use criteria very similar to those
applied in current lease accounting, but without explicit bright lines. The new lease guidance will
essentially eliminate off-balance sheet financing. The guidance is effective for us on March 1, 2019. The
new standard must be adopted using a modified retrospective transition and requires the new guidance to
be applied at the beginning of the earliest comparative period presented.
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We are currently evaluating the impact this guidance may have on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue
from
Contracts
with
Customers
(Topic
606)
.
Topic 606 provides a framework for revenue recognition that replaces most existing GAAP revenue
recognition guidance. The core principle of the guidance is that a company should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The
guidance is effective for us on March 1, 2018, and we elected to adopt the standard using the
retrospective method. Our revenue is primarily generated from the sale of non-customized consumer
products to customers. Each product represents a performance obligation that is satisfied at a single point
in time control transfers, which is generally when we ship the product. The timing and amount of revenue
recognized will not be impacted by the new standard. We have thus concluded that the standard will not
have a material impact on our consolidated financial statements. The provisions of the new standard will,
however, impact the classification of certain consideration paid to our customers. We therefore expect to
reclassify an immaterial amount of such payments from SG&A to a reduction of net sales revenue. The
impact would reduce net sales by approximately 1%. The standard also requires new quantitative and
qualitative disclosures about revenue and costs to obtain or fulfill a contract.
There have been no other accounting pronouncements issued but not yet adopted which are expected to
have a material impact on our consolidated financial statements.
Adopted
In January 2017, the FASB, issued ASU 2017-04, Intangibles-Goodwill
and
Other
(Topic
350):
Simplifying
the
Test
for
Goodwill
Impairment.
This guidance provides for a single-step quantitative test to identify and
measure impairment, requiring an entity to recognize an impairment charge for the amount by which the
goodwill carrying amount exceeds the reporting unit’s fair value. We adopted the guidance on March 1,
2017, applying it on a prospective basis. The application of this guidance has not had a material impact
on our financial statements.
Note 3 – Significant Accounting Matters
Fiscal 2018 - On December 20, 2017, we completed the divestiture of the Nutritional Supplements
segment through the sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC. We
have presented the Nutritional Supplements segment in the accompanying consolidated financial
statements as a discontinued operation. For more information see Note 4 to these consolidated
financial statements.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among
other changes, the Tax Act lowered the U.S. corporate income tax rate from 35% to 21% and
established a modified territorial system requiring mandatory deemed repatriation tax on
undistributed earnings of certain foreign subsidiaries. The rate change is effective at the beginning
of calendar year 2018 and, as a result, we have a blended U.S. federal statutory tax rate of 32.7%
for fiscal 2018. As a result of the enactment, we have recorded a provisional tax expense of $17.9
million related to the one-time remeasurement of our U.S. deferred tax assets and liabilities based
on the rates at which they are expected to reverse in the future, the one-time repatriation tax
applied to our undistributed foreign earnings, and the impact of executive compensation that is no
longer deductible under the Tax Act. On an ongoing basis, we expect that the Tax Act will result in
a reduction to our annual effective tax rate of approximately one percentage point, primarily due to
the reduction in the U.S. corporate income tax rate. For more information see Note 21 to these
consolidated financial statements.
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Fiscal 2017 – There were no significant accounting matters for fiscal 2017.
Fiscal 2016 - During fiscal 2016, as a result of a devaluation of the Venezuelan official rate, continued
economic instability from declines in oil prices and the declaration of an economic emergency, among
other factors, we discontinued the use of the official exchange rate and adopted a market-based
exchange rate for the remeasurement of our Venezuelan financial statements. As a result, we recorded a
charge of $9.57 million (before and after tax) from the re-measurement of our Venezuelan monetary
assets and liabilities at February 29, 2016 at the new rate. In addition to re-measuring our monetary
holdings in Venezuela, we recorded $9.16 million of non-cash impairment charges (before and after tax)
with respect to inventory and property and equipment in order to reflect their respective estimated net
realizable and fair values as of February 29, 2016.
The following table summarizes the financial impact of these adjustments:
IMPACT OF VENEZUELAN RE-MEASURMENT RELATED CHARGES
(in thousands)
Cash and cash equivalents
Other net assets, principally working capital other than
inventory
Inventory
Property and equipment, net
Net investment in Venezuelan operations
Balance at February 29, 2016
Before
Adjustment Adjustments
After
Adjustment
Location of Income
Statement Impact
$
1,302 $
(1,292) $
10 SG&A
8,120
9,378
82
18,882 $
(8,284)
(9,078)
(79)
(18,733) $
$
(164) SG&A
300 Cost of goods sold
3 SG&A
149
Note 4 – Discontinued Operations
On December 20, 2017, we completed the divestiture of the Nutritional Supplements segment through the
sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC. The Nutritional Supplements
segment sold premium branded doctor formulated nutritional supplements, skincare and pain relief
products through highly targeted catalog and other printed collateral mailings, online and direct response
print, radio and television media.
The purchase price from the sale is comprised of $46.0 million in cash, paid at closing, and a
supplemental payment with a target value of $25.0 million, payable on or before August 1, 2019. The final
amount of the supplemental payment may be adjusted up or down based on the performance of Healthy
Directions through February 28, 2018. In conjunction with the sale of the business, we have agreed to
provide certain transition services for up to an eighteen-month period following the closing of the
transaction.
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The balance sheets associated with discontinued operations are presented below:
(in thousands)
Assets
Receivables
Inventory
Prepaid expenses and other current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets, net
Assets of discontinued operations
Liabilities
Accounts payable, principally trade
Accrued expenses and other current liabilities
Other liabilities, noncurrent
(1)
Liabilities of discontinued operations
February 28,
2018
February 28,
2017
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
512
8,245
2,031
8,433
96,609
83,485
599
199,914
6,111
5,862
4,319
16,292
$
$
$
The results of operations associated with discontinued operations are presented in the following table:
(in thousands)
Sales revenue, net
Cost of goods sold
Gross profit
Selling, general and administrative expense ("SG&A")
( 3 )
Asset impairment charges
Restructuring charges
Operating income (loss)
Gain on sale before income tax
Interest expense
Income (loss) before income tax
Income tax benefit (expense)
Income (loss) from discontinued operations
(1)
Includes cash overdrafts.
Fiscal Years Ended the Last Day of February,
2016
2017
( 2 )
2018
$
$
99,013 $
28,744
70,269
72,419
132,297
621
(135,068)
1,624
(367)
(133,811)
49,375
(84,436) $
130,543 $
37,632
92,911
88,742
9,500
-
(5,331)
-
(497)
(5,828)
2,207
(3,621) $
153,126
42,855
110,271
95,950
-
-
14,321
-
(515)
13,806
(5,569)
8,237
(2)
Includes approximately 9.6 months of operating results prior to the divestiture on December 20, 2017.
(3)
Includes goodwill impairment charges of $96.6 million and trademark impairment charges of $35.7 million during fiscal
2018 and trademark impairment charges of $9.5 million during fiscal 2017. Total after tax asset impairment charges were
$83.5 million for fiscal 2018 and $5.9 million for fiscal 2017.
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Note 5 – Property and Equipment
A summary of property and equipment is as follows:
PROPERTY AND EQUIPMENT
(in thousands)
Land
Building and improvements
Computer, furniture and other equipment
Tools, molds and other production equipment
Construction in progress
Property and equipment, gross
Less accumulated depreciation
Property and equipment, net
Estimated
Useful Lives
(Years)
-
3 - 40
3 - 15
1 - 10
-
February 28,
2018
February 28,
2017
$
$
12,800 $
106,870
79,657
33,466
5,912
238,705
(115,202)
123,503 $
12,800
106,648
72,444
31,157
5,606
228,655
(102,153)
126,502
We recorded $14.9, $14.2 and $13.4 million of depreciation expense including $3.7, $4.6 and $4.3 million
in cost of goods sold and $11.2, $9.6 and $9.1 million in SG&A in the consolidated statements of income
for fiscal 2018, 2017 and 2016, respectively.
We lease certain facilities, equipment, and vehicles under operating leases, which expire at various dates
through fiscal 2033. Certain of the leases contain escalation clauses and renewal or purchase options in
addition to rent abatement amounts. Rent expense related to our operating leases was $5.5, $5.3, and
$5.1 million for fiscal 2018, 2017 and 2016, respectively.
Note 6 – Accrued Expenses and Other Current Liabilities
A summary of accrued expenses and other current liabilities is as follows:
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
(in thousands)
Accrued compensation, benefits and payroll taxes
Accrued sales discounts and allowances
Accrued warranty returns
Accrued advertising
Accrued legal fees and settlements
Other
Total accrued expenses and other current liabilities
Note 7 – Other Liabilities, Noncurrent
A summary of other noncurrent liabilities is as follows:
OTHER LIABILITIES, NONCURRENT
February 28,
2018
February 28,
2017
$
$
37,666 $
28,311
22,445
25,324
17,243
34,875
165,864 $
34,917
26,867
20,517
23,747
16,908
25,142
148,098
(in thousands)
Deferred compensation liability
Liability for uncertain tax positions
Other liabilities
Total other liabilities, noncurrent
February 28,
2018
February 28,
2017
$
$
6,736 $
3,349
4,606
14,691 $
6,560
6,611
4,171
17,342
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Note 8 – Hydro Flask Acquisition
On March 18, 2016, we completed the acquisition of all membership units of Steel Technology, LLC,
doing business as Hydro Flask. Hydro Flask is a leading designer, distributor and marketer of high
performance insulated stainless steel food and beverage containers for active lifestyles. The aggregate
purchase price for the transaction was approximately $209.3 million, net of cash acquired. Significant
assets acquired include receivables, inventory, prepaid expenses, property and equipment, trade names,
technology assets, customer relationships, and goodwill. Acquisition-related expenses, incurred during
fiscal 2016, were approximately $0.7 million (before and after tax).
We accounted for the acquisition as the purchase of a business and recorded the excess purchase price
as goodwill, which is not expected to be deductible for income tax purposes. We completed our analysis
of the economic lives of the assets acquired and determined the appropriate fair values of the acquired
assets. We assigned $59.0 million to trade names with indefinite economic lives. We assigned $10.3
million to technology assets and $14.2 million to customer relationships and are amortizing these assets
over expected lives of 10 and 24 years, respectively. For technology assets, we considered the average
life cycle of the underlying products, which range from 7 - 15 years, and the overall average life of the
associated patent portfolio. For the customer relationships, we used historical attrition rates to assign an
expected life.
The following schedule presents the net assets of Hydro Flask recorded at acquisition, excluding cash
acquired:
HYDRO FLASK – NET ASSETS RECORDED UPON ACQUISITION AT MARCH 18, 2016
(in thousands)
Assets:
Receivables
Inventory
Prepaid expenses and other current assets
Property and equipment
Goodwill
Trade names - indefinite
Technology assets - definite
Customer relationships - definite
Subtotal - assets
Liabilities:
Accounts payable
Accrued expenses
Subtotal - liabilities
Net assets recorded
$
$
7,955
6,243
336
1,108
116,053
59,000
10,300
14,200
215,195
2,275
3,662
5,937
209,258
The fair values of the above assets acquired and liabilities assumed were estimated by applying income
and market approaches. Key assumptions include various discount rates based upon a 12.3% weighted
average cost of capital; royalty rates used in the determination of trade names and technology asset
values of 6% and 2%, respectively; and a customer attrition rate used in the determination of customer
relationship values of approximately 4% per year.
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The impact of the Hydro Flask acquisition on our consolidated statements of income for fiscal 2017 is as
follows:
HYDRO FLASK - IMPACT ON CONSOLIDATED STATEMENT OF INCOME
March 18, 2016 (acquisition date) through February 28, 2017
(in thousands, except earnings per share data)
Sales revenue, net
Net income
Earnings per share:
Basic
Diluted
Fiscal Year
Ended
February 28, 2017
107,005
$
27,902
$
$
1.01
1.00
The following supplemental unaudited pro forma information presents our financial results as if the Hydro
Flask acquisition had occurred as of the beginning of the fiscal periods presented. This supplemental pro
forma information has been prepared for comparative purposes and would not necessarily indicate what
may have occurred if the acquisition had been completed on March 1, 2015, and this information is not
intended to be indicative of future results.
HYDRO FLASK - PRO FORMA IMPACT ON CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
As if the acquisition had been completed at the beginning of March 1, 2015
(in thousands, except earnings per share data)
Sales revenue, net
Net income
Earnings per share:
Basic
Diluted
Note 9 – Goodwill and Intangibles
Fiscal Years Ended the Last Day of February
$
$
$
2017
1,410,171 $
144,947
2016
1,450,530
105,669
5.27 $
5.20 $
3.74
3.68
We do not record amortization expense for goodwill or other intangible assets that have indefinite useful
lives. Amortization expense is recorded for intangible assets with definite useful lives. Some of our
goodwill is held in jurisdictions that allow deductions for tax purposes, however, in some of those
jurisdictions we have no tax basis for the associated goodwill recorded for book purposes. Accordingly,
the majority of our goodwill is not deductible for tax purposes. We perform annual impairment testing
each fiscal year and interim impairment testing, if necessary. We write down any asset deemed to be
impaired to its fair value.
Our impairment test methodology uses primarily estimated future discounted cash flow models (“DCF
Models”). The DCF Models use a number of assumptions including expected future cash flows from the
assets, volatility, risk free rate, and the expected life of the assets, the determination of which require
significant judgments from management. In determining the assumptions to be used, we consider the
existing rates on Treasury Bills, yield spreads on assets with comparable expected lives, historical
volatility of our common stock and that of comparable companies, and general economic and industry
trends, among other considerations. When stock market or other conditions warrant, we expand our
traditional impairment test methodology to give weight to other methods that provide additional observable
market information in order to better reflect the current risk level being incorporated into market prices and
in order to corroborate the fair values of each of our reporting units. Management will place increased
reliance on these additional methods in conjunction with its DCF Models in the event that the total market
capitalization of its stock drops below its consolidated stockholders’ equity balance for a sustained period.
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Considerable management judgment is necessary in reaching a conclusion regarding the reasonableness
of fair value estimates, evaluating the most likely impact of a range of possible external conditions,
considering the resulting operating changes and their impact on estimated future cash flows, determining
the appropriate discount factors to use, and selecting and weighting appropriate comparable market level
inputs.
Impairment Testing in Fiscal 2018 - As a result of our annual and interim testing of indefinite-lived
trademarks, we recorded non-cash asset impairment charges totaling $15.4 million ($13.8 million after
tax) during fiscal 2018. The charges were related to trademarks in our Beauty segment, which were
written down to their estimated fair values, determined on the basis of our estimated future discounted
cash flows using the relief from royalty valuation method.
The fair values used in our impairment tests were determined using a weighted average of various
valuation methods including estimated future discounted cash flows and other market data. The valuation
techniques utilized assumptions we believed to be appropriate in the circumstances; however, future
circumstances attributable to a strategic change in our business could result in changes to those
assumptions and other charges or losses relating our segments may be recorded and could be material.
We are unable to project the amount of any expense, charge or loss that may be incurred in future
periods.
Impairment Testing in Fiscal 2017 - As a result of our testing of indefinite-lived trademarks, we recorded
non-cash asset impairment charges of $2.9 million ($2.5 million after tax) during fiscal 2017. The charges
were related to trademarks in our Beauty segment, which were written down to their estimated fair values,
determined on the basis of our estimated future discounted cash flows using the relief from royalty
valuation method.
Impairment Testing in Fiscal 2016 - As a result of our testing of indefinite-lived trademarks, we
recorded non-cash impairment charges of $6.0 million ($5.3 million after tax) during fiscal 2016. The
charges were related to certain trademarks in our Beauty segment, which were written down to fair value,
determined on the basis of future discounted cash flows using the relief from royalty valuation method.
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The following tables summarize the changes in our goodwill and intangible assets by segment for fiscal
2018 and 2017:
GOODWILL AND INTANGIBLE ASSETS
Weighted
Average Gross
Balances at
February 28, 2017
Cumulative
Life
Carrying Goodwill
Year Ended February 28, 2018
Balances at
February 28, 2018
Acquisition
and Retirement Carrying Goodwill
Cumulative
Gross
Accumulated Net Book
(in thousands)
(Years) Amount
Impairments Additions Impairments Adjustments Amount
Impairments Amortization Value
Housewares:
Goodwill
Trademarks - indefinite
Other intangibles - finite
Subtotal
Health & Home:
Goodwill
Trademarks - indefinite
Licenses - finite
Licenses - indefinite
Other Intangibles - finite
Subtotal
Beauty:
Goodwill
Trademarks - indefinite
Trademarks - finite
Licenses - indefinite
Licenses - finite
Other intangibles - finite
Subtotal
$ 282,056 $
134,200
40,393
456,649
10.7
284,913
54,000
15,300
7,400
116,982
478,595
81,841
45,854
150
10,300
13,696
46,402
198,243
4.0
10.6
4.8
0.2
- $
-
-
-
-
-
-
-
-
-
- $
-
607
607
-
-
-
-
605
605
- $
-
-
-
-
-
-
-
-
(46,490)
-
-
-
-
-
(46,490)
-
-
-
-
-
-
-
-
(15,447)
-
-
-
-
(15,447)
- $
-
(173)
(173)
282,056 $
134,200
40,828
457,084
-
-
-
-
-
-
-
-
-
-
-
-
284,913
54,000
15,300
7,400
117,586
479,199
81,841
30,407
150
10,300
13,696
46,402
182,796
- $
-
-
-
-
-
-
-
-
-
- $ 282,056
- 134,200
(17,530)
23,298
(17,530) 439,554
- 284,913
54,000
-
-
(15,300)
7,400
-
(77,128)
40,458
(92,428) 386,771
(46,490)
-
-
-
-
-
(46,490)
-
-
(97)
-
(12,166)
(45,133)
(57,396)
35,351
30,407
53
10,300
1,530
1,269
78,910
Total
$ 1,133,487 $
(46,490) $
1,212 $
(15,447) $
(173) $ 1,119,079 $
(46,490) $
(167,354) $ 905,235
Weighted
Average Gross
Year Ended
February 29, 2016
Cumulative
Life
Carrying Goodwill
Year Ended February 28, 2017
Year Ended
February 28, 2017
Acquisition
and Retirement Carrying Goodwill
Cumulative
Gross
Accumulated Net Book
(in thousands)
(Years) Amount
Impairments Additions Impairments Adjustments Amount
Impairments Amortization Value
Housewares:
Goodwill
Trademarks - indefinite
Other intangibles - finite
Subtotal
Health & Home:
Goodwill
Trademarks - indefinite
Licenses - finite
Licenses - indefinite
Other Intangibles - finite
Subtotal
Beauty:
Goodwill
Trademarks - indefinite
Trademarks - finite
Licenses - indefinite
Licenses - finite
Other intangibles - finite
Subtotal
11.6
$ 166,132 $
75,200
15,448
256,780
- $ 116,053 $
59,000
-
-
25,040
- 200,093
284,913
54,000
15,300
7,400
116,575
478,188
81,841
48,754
150
10,300
13,696
46,402
201,143
-
-
-
-
-
-
(46,490)
-
-
-
-
-
(46,490)
-
-
-
-
472
472
-
-
-
-
-
-
-
5.0
11.6
5.8
1.2
- $
-
-
-
-
-
-
-
-
-
-
(2,900)
-
-
-
-
(2,900)
(129) $
-
(95)
(224)
282,056 $
134,200
40,393
456,649
-
-
-
-
(65)
(65)
284,913
54,000
15,300
7,400
116,982
478,595
- $
-
-
-
-
-
-
-
-
-
- $ 282,056
- 134,200
(15,476)
24,917
(15,476) 441,173
- 284,913
54,000
-
-
(15,300)
7,400
-
(66,027)
50,955
(81,327) 397,268
-
-
-
-
-
-
-
81,841
45,854
150
10,300
13,696
46,402
198,243
(46,490)
-
-
-
-
-
(46,490)
-
-
(92)
-
(11,849)
(39,929)
(51,870)
35,351
45,854
58
10,300
1,847
6,473
99,883
Total
$ 936,111 $
(46,490) $ 200,565 $
(2,900) $
(289) $ 1,133,487 $
(46,490) $
(148,673) $ 938,324
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The following table summarizes the amortization expense attributable to intangible assets recorded in
SG&A in the consolidated statements of income for fiscal 2018, 2017 and 2016, as well as estimated
amortization expense for fiscal 2019 through 2023:
Aggregate Amortization Expense (in thousands)
Fiscal 2018
Fiscal 2017
Fiscal 2016
Estimated Amortization Expense (in thousands)
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Note 10 – Share-Based Compensation Plans
$
$
$
$
$
$
$
$
18,854
22,024
21,514
14,018
12,428
10,384
4,078
3,995
We have equity awards outstanding under an expired employee stock option and restricted stock plan
adopted in 1998 (the “1998 Plan”). We also have equity awards outstanding under three active share-
based compensation plans. The plans consist of the Helen of Troy Limited 2008 Stock Incentive Plan, an
employee stock plan (the “2008 Stock Incentive Plan”), the Helen of Troy Limited 2008 Non-Employee
Directors Stock Incentive Plan, a non-employee director restricted stock plan (the “2008 Directors’ Plan”),
and the Helen of Troy Limited 2008 Employee Stock Purchase Plan (the “2008 Stock Purchase
Plan”). These plans are described below. The plans are administered by the Compensation Committee of
the Board of Directors, which consists of non-employee directors who are independent under the
applicable listing standards for companies traded on the NASDAQ Stock Market LLC.
Expired Plan
The 1998 Plan – The plan covered a total of 6,750,000 shares of common stock for issuance to key
officers and employees. The 1998 Plan provided for the grant of options to purchase our common stock at
a price equal to or greater than the fair market value on the grant date. The 1998 Plan contained
provisions for incentive stock options, non-qualified stock options and restricted share grants. Generally,
options granted under the 1998 Plan become exercisable over four- or five-year vesting periods and
expire on dates ranging from seven to ten years from the date of grant. The 1998 Plan expired by its
terms on August 25, 2008. As of February 28, 2018, there were 1,200 shares of common stock subject to
options outstanding under the plan.
Active Plans
The 2008 Stock Incentive Plan – The plan covers a total of 3,750,000 shares of common stock for
issuance to key officers, employees and consultants of our Company. Under this plan, we offer stock-
based compensation that includes stock options, annual restricted share awards, time-vested restricted
stock units and performance-based restricted stock units. The plan will expire by its terms on August 19,
2018.
· Stock Options: Generally, options granted under the 2008 Stock Incentive Plan will become
exercisable over four- or five-year vesting periods and will expire on dates ranging from seven to
ten years from the date of grant. These stock options are expensed ratably over their vesting
terms. As of February 28, 2018, there were 298,602 shares of common stock subject to options
outstanding under the plan.
· Restricted Stock Awards (“RSAs”): During fiscal 2016, we issued an RSA that immediately vested
for 2,000 shares of common stock to our current CEO at a fair value of $89.12 per share.
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· Restricted Stock Units (“RSUs”): RSUs are awards of time-vested restricted stock units that are
independent of stock option grants and are generally subject to forfeiture if employment terminates
prior to vesting. During fiscal 2018, 2017 and 2016, we granted RSUs that may be settled for up
to 82,356, 92,329 and 29,932 shares of common stock, with weighted average grant date fair
values of $95.36, $96.74 and $76.62, respectively, to the CEO and certain members of the
management team. The awards vest over varying terms up to 4 years. We expense the cost of
restricted stock units ratably over their vesting periods.
· Performance Restricted Stock Units (“PSUs”): PSUs are performance-based restricted stock unit
awards that represent the right to receive unrestricted shares of stock based on the achievement
of our performance goals over the performance period established by the Compensation
Committee of our Board of Directors. During fiscal 2018, 2017 and 2016, we granted PSUs that
may be settled for up to 140,658, 139,846 and 130,608 shares of common stock with average fair
values at the grant date of $96.52, $97.12 and $76.62, respectively, to the CEO and certain
members of the management team. These awards have three year performance periods ending
on the last day of fiscal 2020, 2019 and 2018, respectively. The awards will vest and settle on the
date the Compensation Committee certifies that the performance goals have been
achieved. Expense for the new plan must be estimated until earned, subject to a probability
assessment of achieving the various performance goals and payout levels.
A summary of shares available for issue under the 2008 stock incentive plan follows:
Shares originally authorized
Less cumulative stock option grants issued, net of forfeitures
Less restricted share awards previously vested and settled
Subtotal
Less maximum RSUs issuable upon vesting
Less maximum PSUs issuable upon vesting
(1)
(1)
Shares available for issuance
3,750,000
(1,160,556)
(638,565)
1,950,879
(136,253)
(348,126)
1,466,500
(1) RSUs and PSUs potentially issuable are estimated assuming the maximum payouts adjusted for actual forfeitures to date.
The 2008 Directors’ Plan – The plan covers a total of 175,000 shares of common stock for issuance of
restricted stock, restricted stock units or other stock-based awards to non-employee members of our
Board of Directors. Awards granted under the 2008 Directors' Plan will be subject to vesting schedules
and other terms and conditions as determined by the Compensation Committee of our Board of
Directors. The plan will expire by its terms on August 19, 2018. As of February 28, 2018, 84,483 shares
of restricted stock have been granted and 90,517 shares remained available for future issue under the
plan. Under the 2008 Directors’ Plan for fiscal 2018, 2017 and 2016, we granted 5,658, 5,285 and 5,649
shares of restricted stock, respectively, to certain members of our Board of Directors having weighted
average fair values at the date of grant of $92.95, $92.98 and $87.04 per share for each year,
respectively. The restricted stock awards vested immediately, were valued at the fair value of our
common stock at the date of the grant, and accordingly, were expensed at the time of the grants.
The 2008 Stock Purchase Plan – The plan covers a total of 350,000 shares of common stock for
issuance to our employees. Under the terms of the plan, employees may authorize the withholding of up
to 15% of their wages or salaries to purchase our shares of common stock. The purchase price for
shares acquired under the 2008 Stock Purchase Plan is equal to the lower of 85% of the share’s fair
market value on either the first day of each option period or the last day of each period. The plan will
expire by its terms on September 1, 2018. Shares of common stock purchased under the 2008 Stock
Purchase Plan 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. During fiscal 2018, 2017 and
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2016, plan participants acquired a total of 16,098, 32,110 and 28,433 shares of common stock at average
prices of $76.76, $76.77 and $67.77 per share, respectively. As of February 28, 2018, there were 50,444
shares available for future issue under the plan.
We recorded share-based compensation expense in SG&A as follows:
SHARE-BASED PAYMENT EXPENSE
(in thousands, except per share data)
Stock options
Directors stock compensation
Performance based and other stock awards
Employee stock purchase plan
Share-based compensation expense
Less income tax benefits
Share-based compensation expense, net of income tax benefits
$
Continuing operations earnings per share impact of share-based
compensation expense:
Basic
Diluted
$
$
0.50
0.50
Fiscal Years Ended the Last Day of February,
2017
2016
2018
$
1,634 $
2,614 $
750
12,631
264
15,279
(1,669)
13,610
700
10,243
490
14,047
(1,762)
12,285
0.45
0.44
$
$
$
$
$
$
2,863
700
3,235
552
7,350
(753)
6,597
0.23
0.23
A summary of our total unrecognized share-based compensation expense as of February 28, 2018 is as
follows:
UNRECOGNIZED SHARE-BASED COMPENSATION EXPENSE
(in thousands, except weighted average expense period data)
Stock options
Restricted stock units (RSUs and PSUs)
$
Weighted
Average
Period of
Unrecognized
Compensation Recognition
(in months)
16.9
23.8
1,384
12,220
Expense
There were no options granted during fiscal 2018. The fair value of our stock option grants are estimated
using a Black-Scholes option pricing model with the following assumptions for fiscal years 2017 and
2016:
ASSUMPTIONS USED FOR FAIR VALUE OF STOCK OPTION GRANTS
Range of risk free interest rates used
Expected dividend rate
Weighted average volatility rate
Range of expected volatility rates used
Range of expected terms used (in years)
Fiscal Years Ended the Last Day of February,
2017
1.2%
-%
33.4%
33.4%
4.1
2016
0.9% - 1.5%
-%
39.1%
35.9% - 39.7%
4.1 - 4.4
The risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of
the stock option grants. The dividend yield is computed as zero because we have not historically paid
dividends nor do we expect to do so 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 stock option
grants. We use our historical experience to estimate the expected term of each stock option grant.
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Table of Contents
A summary of stock option activity under all our share-based compensation plans follows:
SUMMARY OF STOCK OPTION ACTIVITY
(in thousands, except contractual term and per share data)
Outstanding at February 28, 2015
Grants
Exercises
Forfeitures / expirations
Outstanding at February 29, 2016
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2017
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2018
Weighted
Weighted Weighted Average
Average Average Remaining
Exercise Grant Date Contractual
Fair Value
Price
Term
Options (per share) (per share) (in years)
Intrinsic
Value
768
186
(178)
(127)
649
2
(170)
(33)
448 $
-
(126)
(22)
300 $
42.76
88.17
37.86
59.01
53.94
102.04
43.07
65.68
57.41 $
-
52.28
72.37
58.35 $
16.28
28.82
19.52
28.74
20.54
-
6.6 26,008
9,480
6.1 26,847
9,152
5.0 $ 18,097
5,400
32.04
4.3 $
9,606
Exercisable at February 28, 2018
175 $
49.18 $
41.11
3.9 $
7,198
A summary of non-vested stock option activity and changes under all our share-based compensation
plans follows:
NON-VESTED STOCK OPTION ACTIVITY
(in thousands, except per share data)
Outstanding at February 28, 2015
Grants
Vested or forfeited
Outstanding at February 29, 2016
Grants
Vested or forfeited
Outstanding at February 28, 2017
Grants
Vested or forfeited
Outstanding at February 28, 2018
85
Non-
Vested
Weighted
Average
Grant Date
Fair Value
Options (per share)
16.98
28.82
17.59
20.81
28.74
18.95
22.48
-
25.02
19.31
674
186
(339)
521
2
(243)
280 $
-
(155)
125 $
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A summary of restricted stock unit activity and changes under our 2008 Stock Incentive Plan follows:
SUMMARY OF RESTRICTED STOCK UNIT ACTIVITY
(in thousands, except per share data)
Outstanding at February 28, 2015
(1)
(1)
Granted
(2)
Vested
Outstanding at February 29, 2016
(1)
Granted
(2)
Vested
Outstanding at February 28, 2017
(1)
Granted
Vested or forfeited
(2)
Outstanding at February 28, 2018
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
Fair Value
(per share) Outstanding
9,041
118
95
-
213
162
(53)
322 $
262
(274)
310 $
58.35
76.62
-
66.50
96.90
70.14
81.19 $
96.44
78.71
90.05 $
20,311
31,418
27,944
(1)
(2)
Includes target level RSUs and PSUs granted to our current CEO and members of management in connection with long-
term incentive compensation for fiscal 2018, 2017 and 2016.
Includes 192,002 and 15,643 RSUs which vested and settled throughout the year at an weighted average fair values of
$62.88 and $60.28 per share for fiscal 2018 and 2017, respectively. There were no RSUs vested or settled in fiscal 2016.
Note 11 – Defined Contribution Plans
We sponsor defined contribution savings plans in the U.S. and other countries where we have employees.
Total company matching contributions made to these plans for fiscal 2018, 2017 and 2016 were $3.9,
$3.2 and $3.1 million, respectively.
Note 1 2 – Repurchase of Helen of Troy Common Stock
On May 10, 2017, our Board of Directors authorized the repurchase of up to $400 million of our
outstanding common stock. The authorization is effective for a period of three years and replaced our
former repurchase authorization, of which approximately $82 million remained. These repurchases may
include open market purchases, privately negotiated transactions, block trades, accelerated stock
repurchase transactions, or any combination of such methods. The number of shares purchased and the
timing of the purchases will depend on a number of factors, including share price, trading volume and
general market conditions, working capital requirements, general business conditions, financial
conditions, any applicable contractual limitations, and other factors, including alternative investment
opportunities. As of February 28, 2018, our repurchase authorization allowed for the purchase of $328.0
million of common stock.
Our current equity-based compensation plans include provisions that allow for the “net exercise” of share
settled awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding
taxes and exercise price of the shares due from the option holder can be paid for by having the option
holder tender back to us a number of shares at fair value equal to the amounts due. Net exercises are
treated as purchases and retirements of shares.
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The following table summarizes our share repurchase activity for the periods shown:
SHARE REPURCHASES
(in thousands, except share and per share data)
Common stock repurchased on the open market or through tender offer:
Number of shares
Aggregate value of shares
Average price per share
Common stock received in connection with share-based compensation:
Number of shares
Aggregate value of shares
Average price per share
Note 13 – Restructuring Plan
Year Ended the Last Day of February
2017
2018
2016
717,300
922,731
$
$
65,795 $
91.73 $
75,000 $
81.28 $
1,126,796
100,000
88.75
75,785
7,258 $
95.77 $
6,286
595 $
94.61 $
117,294
6,411
54.66
$
$
On October 5, 2017, we announced an approved restructuring plan (referred to as “Project Refuel”)
intended to enhance the performance primarily for the Beauty and Nutritional Supplements segments.
Project Refuel includes charges for a reduction-in-force and the elimination of certain contracts. Following
the divestiture of our former Nutritional Supplements segment, as discussed in Note 4 to these
consolidated financial statements, we are targeting total annualized profit improvements of approximately
$8.0 million over the duration of the plan. We estimate the plan to be completed by the first quarter of
fiscal 2020 and expect to incur total restructuring charges in the range of approximately $3.2 to $4.8
million over the same period. Restructuring provisions are determined based on estimates prepared at
the time the restructuring actions are approved by management and are revised
periodically. Restructuring charges also include amounts recognized as incurred.
During fiscal 2018, we incurred $1.9 million of pre-tax restructuring costs related to employee severance
and termination benefits and contract termination costs. As of February 28, 2018, we made cash
restructuring payments of $1.3 million and had a remaining liability of $0.5 million.
Note 14 – 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.
Employment Contracts and Related Matters – We have entered into employment contracts with certain
officers, including an employment agreement with Mr. Julien Mininberg, our CEO, that was amended and
restated on January 7, 2016. The amended and restated agreement, among other things, extended the
term of Mr. Mininberg’s employment agreement from March 1, 2016 through February 28, 2019. These
agreements provide for minimum salary levels, potential incentive bonuses, and in some cases,
performance based awards. These agreements also specify varying levels of salary continuation and/or
severance compensation dependent on certain circumstances such as involuntary termination for other
than cause or involuntary termination due to a change of control.
In some cases, the expiration dates for these agreements are indefinite, unless terminated by either
party. At February 28, 2018, the estimated aggregate commitment for potential future compensation
and/or severance pursuant to all continuing employment contracts, was approximately $7.0 million,
payable over varying terms up to two years from the date of separation.
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Table of Contents
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 China. With most of our
products being manufactured in the Far East, we are subject to risks associated with trade barriers, the
imposition of additional tariffs, currency exchange fluctuations and social, economic and political
unrest. In recent years, increasing labor costs, regional labor dislocations driven by new government
policies, local inflation, changes in ocean cargo carrier capacity and costs, the impact of energy prices on
transportation, and fluctuations in the Chinese Renminbi against the U.S. Dollar have resulted in
variability in our cost of goods sold. In the past, certain Chinese suppliers have closed operations due to
economic conditions that pressured their profitability. Although we have multiple sourcing partners for
certain products, occasionally we are unable to source certain items on a timely basis due to changes
occurring with our suppliers. We believe that we could source similar products outside China, if
necessary, and we continuously explore expanding 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 various
incentives, including incentives in the form of volume rebates. Our estimates of the liabilities for such
incentives is included in the accompanying consolidated balance sheets on the line entitled “Accrued
expenses and other current liabilities,” and in Note 6 to these consolidated financial statements included
in the lines entitled “Accrued sales discounts and allowances” and “Accrued advertising” and are based
on incentives applicable to sales occurring up to the respective balance sheet dates.
Thermometer Patent Litigation – In January 2016, a jury ruled against us in a case that involved claims
by Exergen Corporation. The case involved the alleged patent infringement related to two forehead
thermometer models sold by our subsidiary, Kaz USA, Inc., in the United States. As a result of the jury
verdict, we recorded a charge in fiscal 2016 including legal fees and other related expenses, of $17.8
million (before and after tax). In June 2016, certain post-trial motions were concluded with Exergen
Corporation being awarded an additional $1.5 million of pre-judgment compensation. We accrued this
additional amount in May 2016. In July 2016, we appealed the judgment to the United States Court of
Appeals for the Federal Circuit. In March 2018, the Federal Circuit issued a decision, which reversed the
district court’s verdict of infringement of one of the two patents at issue and remanded the damage award
for a determination by the district court of the impact the reversal of infringement has on the damage
award. We are not yet able to predict the outcome of the further district court proceedings and, therefore,
have not adjusted the related reserve.
Other Matters – We are involved in various 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.
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Contractual Obligations and Commercial Commitments – Our contractual obligations and
commercial commitments at the end of fiscal 2018 were:
PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF FEBRUARY:
2019
1 year
2020
2021
2022
2023
After
(1)
(in thousands)
Floating rate debt
Long-term incentive plan payouts
Interest on floating rate debt
Open purchase orders
Long-term purchase commitments
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
(2)
Total contractual obligations
Total
$ 293,707 $
2 years 3 years 4 years 5 years 5 years
1,900 $ 14,807
1,900 $ 271,300 $
-
1,642
1
7,514
-
-
-
-
-
12,912
-
6,411
38,117
6,278
-
-
$ 681,389 $ 232,684 $ 39,795 $ 36,657 $ 298,622 $ 20,706 $ 52,925
1,900 $
5,412
7,625
182,603
1,033
12,490
14,304
6,237
1,080
1,900 $
4,786
7,569
-
-
12,972
6,298
6,270
-
11,840
29,011
182,603
1,033
55,359
39,071
67,685
1,080
-
429
-
-
7,914
5,531
4,932
-
-
5,873
-
-
9,071
6,527
5,851
-
(1) We estimate our future obligations for interest on our floating rate debt by assuming the weighted average interest rates in
effect on each floating rate debt obligation at February 28, 2018 remain constant into the future. This is an estimate, as
actual rates will vary over time. In addition, for the Credit Agreement, we assume that the balance outstanding as of
February 28, 2018 remains the same for the remaining term of the agreement. The actual balance outstanding under the
Credit Agreement may fluctuate significantly in future periods, depending on the availability of cash flow from operations
and future investing and financing considerations.
(2)
In addition to the contractual obligations and commercial commitments in the table above, as of February 28, 2018, we
have recorded a provision for uncertain tax positions of $3.3 million. We are unable to reliably estimate the timing of most
of the future payments, if any, related to uncertain tax positions; therefore, we have excluded these tax liabilities from the
table above.
Note 15 – Long Term Debt
We have a credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative
agent, and other lenders that provides for an unsecured total revolving commitment of $1 billion as of
February 28, 2018. The commitment under the Credit Agreement terminates on December 7, 2021.
Borrowings accrue interest under one of two alternative methods as described in the Credit Agreement.
With each borrowing against our credit line, we can elect the interest rate method based on our funding
needs at the time. We also incur loan commitment and letter of credit fees under the Credit Agreement.
Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-
dollar basis. As of February 28, 2018, the outstanding revolving loan principal balance was $269.4 million
and the balance of outstanding letters of credit was $7.1. million. As of February 28, 2018, the amount
available for borrowings under the Credit Agreement was $723.5 million. Covenants in our debt
agreements limit the amount of total indebtedness we can incur. As of February 28, 2018 these
covenants effectively limited our ability to incur more than $516.9 million of additional debt from all
sources, including our Credit Agreement, or $692.1 million in the event a qualified acquisition is
consummated.
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A summary of our long-term debt follows:
LONG-TERM DEBT
Original
(dollars in thousands)
Mississippi Business Finance Corporation Loan (the "MBFC Loan")
Senior Notes
Credit Agreement
Total long-term debt
(2)
(3)
(1)
Date
Interest
Borrowed Rates Matures
Floating
03/23 $
3.9 % 01/18
12/21
Floating
03/13
01/11
01/15
February 28, February 28,
2018
2017
24,219 $
-
265,650
289,869
(1,884)
287,985 $
29,903
19,763
435,949
485,615
(24,404)
461,211
Less current maturities of long-term debt
Long-term debt, excluding current maturities
$
(1) The MBFC Loan is unsecured with an original balance of $37.6 million and interest set and payable quarterly at a Base
Rate, plus a margin of up to 1.0%, or applicable LIBOR plus a margin of up to 2.0%, as determined by the interest rate
elected and the Leverage Ratio. The loan is subject to holder’s call on or after March 1, 2018. The loan can be prepaid
without penalty. The remaining loan balance is payable as follows: $1.9 million annually on March 1, 2018 through 2022;
and $14.8 million on March 1, 2023. Any remaining outstanding principal and interest is due upon maturity on March 1,
2023.
(2) Unsecured Senior Notes at a fixed interest rate of 3.9% were paid in full during the fourth quarter of fiscal 2018.
(3) Floating interest rates are hedged with an interest rate swap to effectively fix interest rates on $100 million of the
outstanding principal balance under the Credit Agreement. Notes 16 and 17 to these consolidated financial statements
provide additional information regarding the interest rate swap.
At February 28, 2018, our long-term debt has floating interest rates, and its book value approximates its
fair value. The fair market value of the fixed rate debt at February 28, 2017 computed using a discounted
cash flow analysis and comparable market rates was $20.1 million compared to the $19.8 million book
value.
All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of
its subsidiaries. Our debt agreements require the maintenance of certain financial covenants, including
maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels
(as each of these terms is defined in the various agreements). Our debt agreements also contain other
customary covenants. We were in compliance with the terms of these agreements as of February 28,
2018.
The following table contains information about interest rates on our Credit Agreement and the related
weighted average borrowings outstanding for the periods covered by our consolidated statements of
income:
INTEREST RATES ON CREDIT AGREEMENT
(in thousands)
Average borrowings outstanding
Average interest rate during each year
Interest rate range during each year
Weighted average interest rates on borrowings outstanding at year end
(2)
(1)
$
Fiscal Years Ended the Last Day of February,
2017
498,420
2018
382,960
2016
399,800
$
2.7 %
$
2.2 %
2.3 - 4.8 %
1.9 - 4.3 %
2.9 %
2.3 %
1.6 %
1.4 - 4.0 %
2.8 %
(1) Average borrowings outstanding is computed as the average of the current and four prior quarters ending balances of our
credit facility.
(2) The average interest rate during each year is computed by dividing the total interest expense associated with the Credit
Agreement for a fiscal year by the average borrowings outstanding for the same fiscal year.
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Table of Contents
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
Cross-currency debt swap
Total interest expense
Note 16 – Fair Value
Fiscal Years Ended the Last Day of February,
2017
2018
2016
$
$
13,084
887
54
(74)
13,951
$
$
13,745
706
-
(90)
14,361
$
$
9,941
651
(11)
-
10,581
We classify our various assets and liabilities recorded or reported at fair value under a hierarchy
prescribed by GAAP that prioritizes inputs to fair value measurement techniques into three broad levels:
·
·
·
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active
markets;
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for
the asset or liability, including quoted prices for similar assets or liabilities in active markets;
quoted prices for similar or identical assets or liabilities in markets that are not active; and model-
derived valuations whose inputs are observable or whose significant value drivers are observable;
and
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Assets and liabilities subject to classification are classified upon acquisition. When circumstances dictate
the transfer of an asset or liability to a different level, our policy is to recognize the transfer at the
beginning of the reporting period in which the event resulting in the transfer occurred.
The following tables present the fair value of our financial assets and liabilities measured on a recurring
basis as of the last day of February 2018 and 2017:
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
(in thousands)
Assets:
Money market accounts
Interest rate swap
Foreign currency contracts
Total assets
Liabilities:
Floating rate debt
Foreign currency contracts
Total liabilities
91
Fair Values at
February 28, 2018
(Level 2)
(1)
$
$
$
$
1,107
922
2,201
4,230
289,868
2,606
292,474
Table of Contents
(in thousands)
Assets:
Money market accounts
Foreign currency contracts
Total assets
Liabilities:
(2)
Fixed rate debt
Floating rate debt
Foreign currency contracts
Total liabilities
Fair Values at
February 28, 2017
(Level 2)
(1)
$
$
$
$
2,711
2,167
4,878
20,105
465,852
47
486,004
(1) Our financial assets and liabilities are classified as Level 2 assets because their valuation is dependent on observable
inputs and other quoted prices for similar assets or liabilities, or model-derived valuations whose significant value drivers
are observable.
(2) Debt values are reported at estimated fair value in these tables, but are recorded in the accompanying consolidated
balance sheets at the undiscounted value of remaining principal payments due.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair
value because of the short maturity of these items.
We use derivatives for hedging purposes and our derivatives are primarily interest rate swaps, foreign
currency contracts and cross-currency debt swaps. See Notes 1, 17 and 18 to these consolidated
financial statements for more information on our hedging activities.
We classify our fixed and floating rate debt as Level 2 items because the estimation of the fair market
value of these financial assets requires the use of a discount rate based upon current market rates of
interest for obligations with comparable remaining terms. Such comparable rates are considered
significant other observable market inputs. The fair market value of the fixed rate debt at February 28,
2017 was computed using a discounted cash flow analysis and a discount rate of 1.8%. All other debt
has floating interest rates, and its book value approximates its fair value as of the reporting date.
Our other non-financial assets include goodwill and other intangible assets, which we classify as Level 3
items. These assets are measured at fair value on a non-recurring basis as part of our impairment
testing. Note 9 to these consolidated financial statements contains additional information regarding
impairment testing and related intangible asset impairments. The table below presents other non-
financial assets measured on a non-recurring basis using significant unobservable inputs (Level 3) for
fiscal 2018 and 2017:
OTHER NON-FINANCIAL ASSETS
FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (Level 3)
(in thousands)
Beginning balances
Total income (expense):
Included in net income - realized
Acquired during the period
Acquisition adjustments and retirements during the period
Ending balances
92
Fiscal Years Ended
2018
2017
$
938,324 $
762,878
(34,128)
1,212
(173)
905,235 $
(24,830)
200,565
(289)
938,324
$
Table of Contents
Note 17 – 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 fiscal 2018, 2017 and 2016, approximately
13%, 13% and 16%, respectively, of our net sales revenue was in foreign currencies. These sales were
primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, and Venezuelan
Bolivars. We make most of our inventory purchases from the Far East and primarily use the U.S. Dollar
for such purchases. In our consolidated statements of income, exchange gains and losses resulting from
the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax
liabilities are recognized in their respective income tax lines, and all other foreign exchange gains and
losses are recognized in SG&A. We recorded net exchange gains (losses) from foreign currency
fluctuations, including the impact of currency hedges and the cross-currency debt swap, of $(3.1), $0.5
and ($3.1) million in SG&A during fiscal 2018, 2017 and 2016, respectively.
We hedge against certain foreign currency exchange rate-risk by using a series of forward contracts
designated as cash flow hedges and mark-to-market derivatives to protect against the foreign currency
exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S.
Dollar. We do not enter into any forward exchange contracts or similar instruments for trading or other
speculative purposes. The effective portion of the changes in fair value of these instruments is reported in
OCI and reclassified into SG&A in the same period they are settled. The ineffective portion, which is not
material for any year presented, is immediately recognized in SG&A.
Interest Rate Risk – Interest on our outstanding debt as of February 28, 2018 is based on floating
interest rates. If short-term interest rates increase, we will incur higher interest expense on any future
outstanding balances of floating rate debt. Floating interest rates are hedged with an interest rate swap to
effectively fix interest rates on $100.0 million of the outstanding principal balance under the Credit
Agreement, which totaled $269.4 million as of February 28, 2018.
The following table summarizes the fair values of our various derivative instruments at the end of fiscal
2018 and 2017:
FAIR VALUES OF DERIVATIVE INSTRUMENTS
February 28, 2018
Prepaid
(in thousands)
Derivatives designated as hedging instruments
38,000 $
Cash flow 07/2019 €
Foreign currency contracts - sell Euro
27,750
Foreign currency contracts - sell Canadian Dollars Cash flow 06/2019 $
19,500
Cash flow 04/2019 £
Foreign currency contracts - sell Pounds
Cash flow 05/2018 $
Foreign currency contracts - sell Mexican Pesos
20,000
Cash flow 12/2021 $ 100,000
Interest rate swap
Settlement Notional
Amount
Hedge
Type
Date
Final
Expenses
and Other
Current
Assets
Other
Assets
- $
378
-
5
102 $
101
56
-
539 1,942
922 2,201
Accrued
Expenses
and Other
Current
Liabilities
Other
Liabilities,
Non-current
-
-
-
-
-
-
1,320 $
-
513
-
-
1,833
Subtotal
Derivatives not designated under hedge
accounting
Foreign currency contracts - cross-currency debt
swaps - Euro
Foreign currency contracts - cross-currency debt
swaps - Pound
(1)
(1)
Subtotal
Total fair value
4/2020 $
5,280
-
-
-
4/2020 $
6,395
$
-
-
-
-
922 $ 2,201 $
-
-
1,833 $
208
565
773
773
93
Table of Contents
Final
Derivatives designated as hedging instruments
Foreign currency contracts - sell Euro
2/2018 €
Foreign currency contracts - sell Canadian Dollars Cash flow 6/2018 $
Cash flow
Foreign currency contracts - sell Pounds
2/2018 £
Cash flow 2/2018 $
Foreign currency contracts - sell Mexican Pesos
Date
Hedge
Type
Cash flow
Settlement
Notional
Amount
Subtotal
Derivatives not designated under hedge
accounting
Foreign currency contracts - cross-currency debt
swap - Euro
Total fair value
February 28, 2017
Prepaid
Expenses
and Other
Current
Assets
Other
Assets
Accrued
Expenses
and Other
Current
Liabilities
Other
Liabilities,
Non-current
27,500 $
26,000
13,500
59,600
727 $
155
548
-
1,430
- $
32
-
-
32
- $
-
-
47
47
-
-
-
-
-
-
-
(1)
1/2018 $
10,000
$
705
2,135 $
-
32 $
-
47 $
(1) These are foreign currency contracts for which we have not elected hedge accounting. We refer to them as “cross-
currency debt swaps”. They, in effect, adjust the currency denomination of a portion of our outstanding debt to the Euro
and British Pound, as applicable, for the notional amounts reported, creating an economic hedge against currency
movements.
PRE-TAX EFFECT OF DERIVATIVE INSTRUMENTS
The pre-tax effect of derivative instruments for fiscal 2018 and 2017 is as follows:
Fiscal Years Ended February 28,
Gain (Loss)
Recognized in OCI
(effective portion)
2018
2017
Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income (Loss) into Income
Gain (Loss) Recognized
As Income
(in thousands)
Currency contracts - cash flow hedges $ 1,758 $
2,481
Interest rate swaps - cash flow hedges
-
Cross-currency debt swaps - principal
-
Cross-currency debt swaps - interest
Location
2018
2017
Location
2,205 SG&A
- Interest expense
-
-
$ 4,364 $ 1,454
-
-
- SG&A
-
-
-
$
Interest expense
Interest Expense
2018 2017
-
- $
-
(54)
(1,479) 499
90
74
Total
$ 4,239 $
2,205
$ 4,364 $ 1,454
$ (1,459) $
589
We expect a net loss of $0.9 million associated with foreign currency contracts and interest rate swaps
currently reported in accumulated other comprehensive income, to be reclassified into income over the
next twelve months. The amount ultimately realized, however, will differ as exchange rates change and
the underlying contracts settle. See Notes 1, 16 and 18 to these consolidated financial statements for
more information on our hedging activities.
Counterparty Credit Risk – Financial instruments, including foreign currency contracts, cross-currency
debt swaps and interest rate swaps, expose us to counterparty credit risk for nonperformance. We
manage our exposure to counterparty credit risk by 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 and Cash Equivalents – As the levels of our cash and cash equivalents
change, they can become more subject to foreign exchange rate risk, interest rate risk, credit risk, and
liquidity risk. Cash consists of interest-bearing, non-interest-bearing and short-term investment
accounts. We consider money market accounts to be cash equivalents.
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The following table summarizes our cash and cash equivalents at the end of fiscal 2018 and 2017:
CASH AND CASH EQUIVALENTS
February 28, 2018
February 28, 2017
(in thousands)
Carrying
Amount
Range of
Carrying Range of
Interest Rates Amount
Cash, interest and non-interest-bearing accounts
Money market funds
Total cash and cash equivalents
$
$
19,631
1,107
20,738
0.00 to 0.35% $
0.0 to 0.03%
$
21,138
2,711
23,848
Note 18 – Accumulated Other Comprehensive Income (Loss)
Interest Rates
0.00 to 0.35%
0.18 to 0.19%
The changes in accumulated other comprehensive income (loss) by component and related tax effects for
fiscal 2018 and 2017 were as follows:
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
Unrealized Holding Gains (Losses) on Cash Flow Hedges
(in thousands)
Balance at February 29, 2016
Other comprehensive income before reclassification
Amounts reclassified out of accumulated other comprehensive income
Tax effects
Other comprehensive income (loss)
Balance at February 28, 2017
Other comprehensive income (loss) before reclassification
Amounts reclassified out of accumulated other comprehensive income
Tax effects
Other comprehensive income (loss)
Balance at February 28, 2018
Interest
Rate Swaps
Foreign
Currency
Contracts
$
$
$
-
-
-
-
-
-
2,481
-
(776)
1,705
1,705
$
$
$
665
2,205
(1,454)
(243)
508
1,173
1,758
(4,364)
359
(2,247)
(1,074)
$
$
$
Total
665
2,205
(1,454)
(243)
508
1,173
4,239
(4,364)
(417)
(542)
631
See Notes 1, 16 and 17 to these consolidated financial statements for additional information regarding our
hedging activities.
Note 19 – Segment and Geographic Information
The following table contains segment information included in continuing operations.
SEGMENT INFORMATION
(in thousands)
Fiscal 2018
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Housewares
$
(1)
Health & Home
Beauty
682,605 $
-
-
62,099 $
674,440
3,716
16,750
349,323 $
15,447
1,637
17,644
282,729
1,352
11,155
Total
1,489,747
15,447
1,857
169,062
1,621,320
13,605
33,730
457,819 $
-
220
89,319 $
664,151
8,537
5,825
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Fiscal 2017
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Housewares
$
418,128 $
(1)
Health & Home
Beauty
-
-
89,020
642,967
5,652
5,795
632,769 $
-
-
51,072
679,248
5,192
20,483
355,779 $
2,900
-
29,572
284,992
4,663
9,897
Fiscal 2016
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Housewares
Health & Home
Beauty
$
310,663 $
642,735 $
-
-
55,944
610,176
1,560
4,532
-
-
36,860
715,104
9,131
22,022
439,177
6,000
-
23,490
306,651
5,985
8,335
Total
1,406,676
2,900
-
169,664
1,607,207
15,507
36,175
Total
1,392,575
6,000
-
116,294
1,631,931
16,676
34,889
(1) Fiscal 2018 includes a full twelve months of operating results for Hydro Flask, compared to eleven and one-half months for
fiscal 2017.
We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A and
any asset impairment charges associated with the segment. The SG&A used to compute each segment’s
operating income is directly associated with the segment, plus shared service and corporate overhead
expenses that are allocable to the segment. We have reallocated corporate overhead expenses to the
above continuing segments that were previously allocated to our former Nutritional Supplements
segment. We do not allocate nonoperating income and expense, including interest or income taxes, to
operating segments.
Our domestic and international net sales revenue and long-lived assets were as follows:
GEOGRAPHIC INFORMATION
(in thousands)
SALES REVENUE, NET:
United States
International
Total
LONG-LIVED ASSETS:
United States
International:
Barbados
Other international
Subtotal
Total
Fiscal Years Ended the Last Day of February,
2016
2017
2018
$
$
1,168,888 $
320,859
1,489,747 $
1,111,109 $
295,567
1,406,676 $
1,080,338
312,237
1,392,575
$
437,920 $
409,337 $
407,621
496,258
131,830
628,088
1,066,008 $
499,064
159,490
658,554
1,067,891 $
315,182
171,774
486,956
894,577
$
The table above classifies assets based upon the country where we hold legal title.
Worldwide sales to our largest customer and its affiliates accounted for approximately 15%, 16% and 18%
of our net sales revenue in fiscal 2018, 2017 and 2016, respectively. Sales to this customer are made
within the Beauty and Health & Home segments. Of these sales, approximately 78%, 79%, and 78% for
fiscal 2018, 2017 and 2016, respectively, were within the United States. Sales to our second largest
customer accounted for 13% of our net sales in fiscal 2018. No other customers accounted for 10% or
more of net sales revenue during the periods presented.
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Note 20 – Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data is as follows (in thousands except share data):
SELECTED QUARTERLY FINANCIAL DATA
Fiscal Year 2018:
Sales revenue, net
Gross profit
Asset impairment charges
Income from continuing operations
Income (loss) from discontinued operations
$
May
327,986 $
134,065
4,000
27,308
(21,440)
August
November February
Total
347,205 $
145,733
-
34,572
(25,639)
423,709 $
181,005
-
58,624
(89,060)
390,847 $ 1,489,747
622,101
161,298
15,447
11,447
128,882
8,378
(84,436)
51,703
Earnings (loss) per share
(1)
Basic
Continuing operations
Discontinued operations
Total earnings per share
Diluted
Continuing operations
Discontinued operations
Total earnings per share
Fiscal Year 2017:
Sales revenue, net
Gross profit
Asset impairment charges
Income from continuing operations
Income (loss) from discontinued operations
Earnings (loss) per share
(1)
Basic
Continuing operations
Discontinued operations
Total earnings per share
Diluted
Continuing operations
Discontinued operations
Total earnings per share
$
$
$
$
$
$
$
$
$
1.01 $
(0.79)
0.22 $
1.27 $
(0.94)
0.33 $
2.16 $
(3.28)
(1.12) $
1.00 $
(0.79)
0.22 $
1.26 $
(0.94)
0.33 $
2.15 $
(3.27)
(1.12) $
0.31 $
1.91
2.22 $
0.31 $
1.91
2.22 $
4.76
(3.12)
1.64
4.73
(3.10)
1.63
May
311,998 $
126,633
2,400
23,646
(4,620)
August
November February
Total
335,058 $
139,390
-
29,465
(1,110)
412,251 $
171,927
-
56,774
838
347,369 $ 1,406,676
582,557
144,607
2,900
500
144,310
34,425
(3,621)
1,271
0.85 $
(0.17)
0.69 $
1.06 $
(0.04)
1.02 $
0.84 $
(0.16)
0.68 $
1.04 $
(0.04)
1.00 $
2.07 $
0.03
2.10 $
2.04 $
0.03
2.07 $
1.27 $
0.05
1.31 $
1.25 $
0.05
1.30 $
5.24
(0.13)
5.11
5.17
(0.13)
5.04
(1) Earnings per share calculations for each quarter are based on the weighted average number of shares outstanding for
each period, and the sum of the quarterly amounts may not necessarily equal the annual earnings per share amounts.
Note 21 - Income Taxes
We reorganized the Company in Bermuda in 1994 and many of our foreign subsidiaries are not directly or
indirectly owned by a U.S. parent. As such, a large portion of our foreign income is not subject to U.S.
taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned
by foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax
rates, which decreases our overall effective tax rate. The taxable income earned in each jurisdiction,
whether U.S. or foreign, is determined by the subsidiary's operating results, and transfer pricing and tax
regulations in the related jurisdictions.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among other
changes, the Tax Act lowered the U.S. corporate income tax rate from 35% to 21% and established a
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modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of
certain foreign subsidiaries. The rate change is effective at the beginning of calendar year 2018 and, as a
result, we have a blended U.S. federal statutory tax rate of 32.7% for our fiscal year 2018.
Under accounting standards for income taxes, the impact of new tax legislation must be taken into
account in the period in which it is enacted. Subsequent to the Tax Act, the SEC issued Staff Accounting
Bulletin 118 (“SAB 118”) allowing companies to use provisional estimates to record the effects of the Tax
Act. SAB 118 also provides a measurement period (not to exceed one year from the date of enactment) to
complete the accounting for the impacts of the Tax Act.
As a result of the enactment, we have recorded a provisional tax expense of $17.9 million related to the
one-time remeasurement of our U.S. deferred tax assets and liabilities based on the rates at which they
are expected to reverse in the future, the one-time repatriation tax applied to our undistributed foreign
earnings, and the impact of executive compensation that is no longer deductible under the Tax Act. The
ultimate impact may differ from these provisional amounts due to additional analysis, changes in
interpretations and assumptions we have made, additional regulatory guidance that may be issued and
actions the we may take as a result of the Tax Act. Any subsequent adjustments to provisional estimates
will be reflected in our income tax provision during one or more periods in our fiscal 2019.
Due to the enactment of the Tax Act, future repatriations of foreign earnings will generally be free of U.S.
federal income tax but may incur withholding or state taxes. As of February 28, 2018, we have not made
a change to our assertion that undistributed net earnings with respect to certain foreign subsidiaries are
indefinitely reinvested outside the United States. All undistributed net earnings have been taxed in the
U.S. as a result of the Tax Act, and consistent with our assertion, the Company intends to limit any future
distributions to previously taxed income. However, we are continuing to analyze the impact of the Tax Act
on our assertion.
Our components of income before income tax expense are as follows:
COMPONENTS OF INCOME BEFORE TAXES
(in thousands)
U.S.
Non-U.S.
Total
Fiscal Years Ended the Last Day of February,
2017
2016
2018
$
$
23,824 $
131,614
155,438 $
20,878 $
134,839
155,717 $
17,069
88,943
106,012
Our components of income tax expense (benefit) are as follows:
COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
(in thousands)
U.S.
Current
Deferred
Non-U.S.
Current
Deferred
Total
Fiscal Years Ended the Last Day of February,
2017
2016
2018
$
3,380 $
19,578
22,958
19,195 $
(10,475)
8,720
10,444
(4,428)
6,016
1,912
1,686
3,598
26,556 $
(290)
2,977
2,687
11,407 $
4,919
2,086
7,005
13,021
$
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Our total income tax expense differs from the amounts computed by applying the U.S. statutory tax rate to
income before income taxes. A summary of these differences are as follows:
INCOME TAX RATE RECONCILIATION
Effective income tax rate at the U.S. statutory rate
Impact of U.S. state income taxes
Effect of statutory tax rate in Macau
Effect of statutory tax rate in Barbados
Effect of statutory tax rate in Europe
Effect of statutory tax rate in Switzerland
Effect of income from other non-U.S. operations subject to varying rates
Effect of foreign exchange fluctuations
Effect of asset impairment charges
Effect of U.S. tax reform
Effect of uncertain tax positions
Other Items
Effective income tax rate
Fiscal Years Ended the Last Day of February,
2017
2018
2016
32.7 %
0.5 %
(19.5)%
(5.2)%
(5.3)%
- %
2.1 %
0.3 %
2.2 %
11.5 %
(1.3)%
(0.9)%
17.1 %
35.0 %
0.5 %
(20.1)%
(7.3)%
(3.6)%
- %
2.1 %
0.4 %
0.4 %
- %
- %
(0.1)%
7.3 %
35.0 %
(0.1)%
(21.8)%
(7.6)%
- %
(6.5)%
4.6 %
3.8 %
1.3 %
- %
- %
3.6 %
12.3 %
Our Macau subsidiary generates income from the sale of the goods that it has sourced and
procured. This subsidiary is responsible for the sourcing and procurement of a large portion of the
products that we sell. We have an indefinite tax holiday in Macau conditioned on the subsidiary meeting
certain employment and investment thresholds. We have not experienced any issues in meeting the
required thresholds and are unaware of any regulatory changes or impending circumstances that would
restrict our right to continue to benefit from the tax holiday. Because our Macau subsidiary is not directly
or indirectly owned by a U.S. parent, there is no U.S. tax liability associated with the income generated in
Macau.
Each 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 or events, the trend in our effective tax rates would follow a
more normalized pattern.
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 2018 and 2017 are as follows:
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
(in thousands)
Deferred tax assets, gross:
Operating loss carryforwards
Accounts receivable
Inventories
Accrued expenses and other
Total gross deferred tax assets
Valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Total deferred tax liabilities, net
$
Last Day of February,
2017
2018
32,829 $
4,767
7,183
7,385
52,164
16,799
7,375
11,057
12,007
47,238
(17,747)
(17,600)
(24,859)
$
9,558 $
(47,774)
(18,136)
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of
deferred tax liabilities, expected future taxable income and tax planning strategies in assessing the
ultimate realization of 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 be
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recoverable. In fiscal 2018, the $0.1 million net decrease in our valuation allowance was principally due
to changes in estimates regarding the value of operating loss carryforwards to be used in the future.
As of February 28, 2018 and 2017, we had remaining tax-deductible goodwill of $19.0 million and $113.0
million, respectively, resulting from acquisitions. The amortization of this goodwill is deductible over
various periods ranging up to 2 years. The tax deduction for goodwill in fiscal 2019 is expected to be
approximately $1.3 million.
The composition of our operating loss carryforwards at the end of fiscal 2018 is as follows:
SUMMARY OF OPERATING LOSS CARRYFORWARD
(in thousands)
U.S. federal and state operating loss carryforward
Non-U.S. operating loss carryforwards with definite carryover periods
Non-U.S. operating loss carryforwards with indefinite carryover periods
Subtotals
Less portion of valuation allowance established for operating loss
carryforwards
Total
Tax Year
Expiration
Date Range
2021 - Indefinite $
2020 - 2035
Indefinite
Balances at February 28, 2018
Deferred
Tax
Assets
Operating
Loss
Carryforward
81,856
7,853
50,436
140,145
16,549 $
2,103
14,177
32,829 $
$
(16,406)
16,423
Any future amount of deferred tax asset considered realizable could be reduced in the near term if
estimates of future taxable income during any carryforward periods are reduced.
During fiscal 2018 and 2017, changes in the total amount of unrecognized tax benefits were as follows:
UNRECOGNIZED TAX BENEFITS
(in thousands)
Total unrecognized tax benefits, beginning balance
Tax positions taken during the current period
Resolution of tax dispute
Changes in tax positions taken during a prior period
Lapse in statute of limitations
Impact of foreign currency re-measurement
Settlements
Total unrecognized tax benefits, ending balance
Less current unrecognized tax benefits
Noncurrent unrecognized tax benefits
Fiscal Years Ended
the Last Day of February,
2018
2017
6,611
-
(1,486)
88
(890)
218
(113)
4,428
(1,079)
3,349
$
$
8,737
-
-
(1,260)
(218)
(133)
(515)
6,611
-
6,611
$
$
Included in the balance of unrecognized tax benefits at the end of fiscal 2018 were $4.4 million of tax
benefits, which, if recognized, would affect our effective tax rate. We do not expect any significant
changes to our existing unrecognized tax benefits during the next twelve months resulting from any issues
currently pending with tax authorities.
We classify interest and penalties on uncertain tax positions as income tax expense. At the end of
February 2018 and 2017, the liability for tax-related interest and penalties included in unrecognized tax
benefits was $1.1 million and $1.7 million, respectively. Additionally, during fiscal 2018, 2017 and 2016
we recognized expense (benefit) of ($0.5) ($0.6) and $0.5 million, respectively, in the consolidated
statements of income.
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We file income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions.
We do not expect that any proposed adjustments from these tax jurisdictions will have a material impact
on our consolidated financial statements.
As of February 28, 2018, tax years under examination or still subject to examination by material tax
jurisdictions are as follows:
Jurisdiction
United Kingdom
United States
Switzerland
Hong Kong
Tax Years Under
Examination
- None -
2016
- None -
- None -
2017
Open Tax Years
-
2007, 2008, 2015 - 2018
-
-
2018
2018
2018
2014
2010
During fiscal 2017 we received an assessment from a state tax authority which adjusted taxable income
applicable to the particular state resulting from interpretations of certain state income tax provisions
applicable to our legal structure. We believe we have accurately reported our taxable income and are
vigorously protesting the assessment through administrative processes with the state. We believe it is
unlikely that the outcome of these matters will have a material adverse effect on our consolidated financial
position, results of operations, or liquidity.
Note 22 – Earnings Per Share
We compute basic earnings per share using the weighted average number of shares of common stock
outstanding during the period. We compute diluted earnings per share using the weighted average
number of shares of common stock outstanding plus the effect of dilutive securities. Dilutive securities at
any given point in time may consist of outstanding options to purchase common stock and issued and
contingently issuable unvested RSUs and PSUs. See Note 10 to these consolidated financial statements
for more information regarding RSUs, PSUs and other performance based stock awards. Options for
common stock are excluded from the computation of diluted earnings per share if their effect is
antidilutive.
For fiscal 2018, 2017 and 2016, the components of basic and diluted shares were as follows:
WEIGHTED AVERAGE DILUTED SECURITIES
(in thousands)
Weighted average shares outstanding, basic
Incremental shares from share-based compensation arrangements
Weighted average shares outstanding, diluted
Dilutive securities, stock options
Dilutive securities, unvested or unsettled stock awards
Antidilutive securities
101
Fiscal Years Ended the Last Day of February,
2017
2016
2018
27,077
177
27,254
230
114
319
27,522
369
27,891
365
186
137
28,273
476
28,749
317
227
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Additions
(in thousands)
Year Ended February 28, 2018
Balance
Beginning
cost and
Ending
expenses (1) sales revenue (2) Deductions (3) Balance
Charged to
Net charge
(credit) to
Allowances for doubtful accounts
Allowances for sales returns
$
3,266 $
2,293
1,066 $
-
- $
104
1,420 $
- $
2,912
2,397
Year Ended February 28, 2017
Allowances for doubtful accounts
Allowances for sales returns
$
1,712 $
4,165
2,277 $
-
- $
(1,872)
723 $
- $
3,266
2,293
Year Ended February 29, 2016
Allowances for doubtful accounts
Allowances for sales returns
$
1,830 $
4,033
298 $
-
- $
132
416 $
- $
1,712
4,165
All amounts presented above have been restated to exclude the impact of our discontinued operations.
(1) Represents periodic charges to the provision for doubtful accounts.
(2) Represents net charges (credits) during the period to sales returns and allowances.
(3) Represents write-offs of doubtful accounts, net of recoveries of previously reserved amounts .
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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our 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
Exchange Act as of February 28, 2018. 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 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 on internal
controls over financial reporting of the independent registered public accounting firm required by this item
are set forth under Item 8., “Financial Statements and Supplementary Data” of this Annual Report on
Form 10-K 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 as defined in Rule 13a-15(f) promulgated under the Exchange Act that occurred during
our fiscal year ended February 28, 2018, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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Item 10. Directors, Executive Officers and Corporate Governance
PART III
·
·
·
·
·
·
Information in our definitive Proxy Statement for the 2018 Annual General Meeting of
Shareholders (the “Proxy Statement”) is incorporated by reference in response to this Item 10, as
noted below:
Information about our Directors who are standing for re-election 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” and “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.”
Information about any material changes to procedures for recommending nominees to the board
of directors is set forth under “Board Committees and Meetings.”
We have adopted a Code of Ethics governing our Chief Executive Officer, Chief Financial Officer,
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”;
“Compensation Discussion and Analysis”; “Compensation Committee Interlocks and Insider Participation”;
and “Report of the Compensation Committee” 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 - Related Person Transactions”;
“Corporate Governance”; and “Board Committees and Meetings” in our Proxy Statement is incorporated
by reference in response to this Item 13.
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Item 14. Principal Accounting 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.
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)
1. Financial Statements: See “Index to Consolidated Financial Statements” under Item 8
in this Annual Report on Form 10-K.
2. Financial Statement Schedule: See “Schedule II” in this Annual Report on Form 10‑K.
3. Exhibits
The exhibit numbers succeeded by an asterisk (*) indicate exhibits physically filed with this Form 10-K.
The exhibit numbers succeeded by an asterisk (**) indicate exhibits furnished with this Form 10-K that are
not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not
subject to liability. All other exhibit numbers indicate exhibits filed by incorporation by reference. Exhibit
numbers succeeded by a cross (†) are management contracts or compensatory plans or arrangements.
2.1
3.1
3.2
10.1 †
10.2 †
10.3 †
10.4 †
10.5 †
10.6 †
Agreement and Plan of Merger dated as of December 8, 2010, among Helen of Troy
Texas Corporation, KI Acquisition Corp., Kaz, Inc., the Company, and the Kaz, Inc.
shareholders party thereto (incorporated by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on
December 9, 2010).
Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company'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 Appendix A to the Company’s
Definitive Proxy Statement on Schedule 14A, File No. 001-14669, filed with the Securities
and Exchange Commission on June 27, 2016).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2014, filed
with the Securities and Exchange Commission on April 29, 2014 (the “2014 10-K”)).
Amended and Restated Helen of Troy Limited 1998 Stock Option and Restricted Stock
Plan (incorporated by reference to Appendix A to the Company'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 (incorporated by
reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 2006, filed with the Securities and Exchange Commission on
May 15, 2006 (the “2006 10-K”)).
Form of Helen of Troy Limited Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.26 of the 2006 10-K).
Helen of Troy Limited 2008 Employee Stock Purchase Plan (incorporated by reference to
Appendix A to the (incorporated by reference to Appendix A to the Company's Definitive
Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
June 27, 2008 (the “2008 Proxy Statement”)).
Helen of Troy Limited 2008 Non-Employee Directors Stock Incentive Plan (incorporated by
reference to Appendix C to the 2008 Proxy Statement).
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10.7 †
10.8
10.9 †
10.10 †
10.11
10.12
10.13
10.14 †
10.15 †
10.16
10.17
10.18
Form of Restricted Stock Agreement for the Company’s 2008 Non-Employee Directors
Stock Incentive Plan (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 August 26,
2009).
Note Purchase Agreement, dated January 12, 2011, by and among Helen of Troy, L.P.,
the Company, Helen of Troy Limited, a Barbados company, and the purchasers 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 January 18, 2011).
Helen of Troy Limited Amended and Restated 2008 Stock Incentive Plan (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 August 25, 2015).
Amended and Restated Helen of Troy Limited 2011 Annual Incentive Plan (incorporated
by reference to Exhibit 10.1 of the Company’s Quarterly Report on 10-Q, filed with the
Securities and Exchange Commission on October 11, 2016).
Loan Agreement, dated as of March 1, 2013, by and between Kaz USA, Inc. and
Mississippi Business Finance Corporation (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 March 26, 2013).
Guaranty Agreement, dated as of March 1, 2013, by Helen of Troy Limited and certain of
its subsidiaries in favor of Bank of America, N.A. (incorporated by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 26, 2013).
Trust Indenture, dated as of March 1, 2013 between Mississippi Business Finance
Corporation and Deutsche Bank National Trust, as trustee (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 March 26, 2013).
Form of Helen of Troy Limited Stock Option Agreement (incorporated by reference to
Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended
February 28, 2013, filed with the Securities and Exchange Commission on April 29, 2013
(the “2013 10-K”)).
Form of Restricted Stock Agreement for the Company’s 2008 Non-Employee Directors
Stock Incentive Plan (incorporated by reference to Exhibit 10.35 of the 2013 10-K).
First Amendment to Guaranty Agreement, dated as of February 7, 2014, made by Helen of
Troy, L.P., Helen of Troy Limited, a Barbados company, HOT Nevada, Inc, Helen of Troy
Nevada Corporation, Helen of Troy Texas Corporation, Idelle Labs Ltd., OXO International
Ltd., Helen of Troy Macao Commercial Offshore Limited, Kaz, Inc., Kaz USA, Inc., Kaz
Canada, Inc., and Pur Water Purification Products, Inc., in favor of Bank of America, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on February 10, 2014).
Second Amendment to Guaranty Agreement, dated as of June 11, 2014, made by Helen
of Troy Limited and certain of its subsidiaries in favor of Bank of America, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on June 17, 2014).
Amended and Restated Credit Agreement dated January 16, 2015, by and among Helen
of Troy, L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company,
Bank of America, N.A., as administrative agent, 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 January 20, 2015).
106
Table of Contents
10.19
10.20*
10.21
10.22
10.23
10.24
10.25
10.26 †
10.27 †
10.28 †
10.29
First Amendment to Amended and Restated Credit Agreement dated December 7, 2016,
by and among Helen of Troy, L.P., a Texas limited partnership, Helen of Troy Limited, a
Bermuda company, Bank of America, N.A., as administrative agent, 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 December 13, 2016).
Amended and Restated Guaranty, dated March 1, 2018, made by Helen of Troy Limited
and certain of its subsidiaries in favor of Bank of America, N.A. and other lenders, pursuant
to the Amended and Restated Credit Agreement, dated January 16, 2015.
Third Amendment to Guaranty Agreement, dated as of January 16, 2015, made by Helen
of Troy Limited and certain of its subsidiaries in favor of Bank of America, N.A.
(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 January 20, 2015).
Fourth Amendment to Guaranty Agreement, dated as of December 7, 2016, made by
Helen of Troy Limited and certain of its subsidiaries in favor of Bank of America, N.A.
(incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K
for the fiscal year ended February 28, 2017, filed with the Securities and Exchange
Commission on May 1, 2017 (the “2017 10-K”)).
First Supplemental Trust Indenture, dated as of March 1, 2014, by and between
Mississippi Business Finance Corporation and Deutsche Bank National Trust, as trustee
(incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-K
for the fiscal year ended February 28, 2015, filed with the Securities and Exchange
Commission on April 29, 2015 (the “2015 10-K”)).
Second Supplemental Trust Indenture, dated as of February 18, 2015 but effective
February 1, 2015, by and between Mississippi Business Finance Corporation and
Deutsche Bank National Trust, as trustee (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 February 23, 2015).
Third Supplemental Trust Indenture, dated as of December 7, 2016, but effective
December 1, 2016, by and between Mississippi Business Finance Corporation and
Deutsche Bank National Trust, as trustee (incorporated by reference to Exhibit 10.25 of the
2017 10-K).
Performance Restricted Stock Unit Agreement by and between Helen of Troy Limited and
Julien R. Mininberg, granted May 22, 2014 (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 August 7, 2015).
Performance Restricted Stock Unit Agreement by and between Helen of Troy Limited and
Julien R. Mininberg, granted March 1, 2015 (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on August 7, 2015).
Amended and Restated Employment Agreement among Helen of Troy Nevada
Corporation, Helen of Troy Limited and Julien Mininberg, dated January 7, 2016
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-
Q for the period ending November 30, 2015, filed with the Securities and Exchange
Commission on January 11, 2016).
Second Amendment, Assumption, Consent and Ratification Agreement, dated effective as
of March 1, 2018, by and among Helen of Troy Limited, a Bermuda company, Helen of
Troy Texas Corporation, a Texas corporation, Helen of Troy L.P., a Texas limited
partnership, the guarantors party thereto, Bank of America, N.A., as administrative agent,
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 March 7, 2018).
107
Table of Contents
10.30* †
10.31* †
21*
23.1*
31.1*
31.2*
32**
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
First Amendment to Helen of Troy Limited 2008 Employee Stock Purchase Plan.
Second Amendment to Helen of Troy Limited 2008 Employee Stock Purchase Plan.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, Grant Thornton 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.
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
108
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
a
HELEN OF TROY LIMITED
By: /s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer and Director
April 30, 2018
Pursuant to the requirements of the Exchange Act, 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/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer, Director and Principal
Executive Officer
April 30, 2018
/s/ Gary B. Abromovitz
Gary B. Abromovitz
Director, Deputy Chairman of the Board
April 30, 2018
/s/ Beryl B. Raff
Beryl B. Raff
Director
April 30, 2018
/s/ Darren G. Woody
Darren G. Woody
Director
April 30, 2018
/s/ William F. Susetka
William F. Susetka
Director
April 30, 2018
/s/ Brian L. Grass
Brian L. Grass
Chief Financial Officer, Principal Financial Officer and
Principal Accounting Officer
April 30, 2018
/s/ Timothy F. Meeker
Timothy F. Meeker
Director, Chairman of the Board
April 30, 2018
/s/ Krista Berry
Krista Berry
Director
April 30, 2018
/s/ Thurman K. Case
Thurman K. Case
Director
April 30, 2018
109
AMENDED AND RESTATED GUARANTY
Exhibit 10.20
AMENDED AND RESTATED GUARANTY (this “ Guaranty ”), dated as of March 1, 2018, made by each
of the parties listed on the signature pages hereof and each other Person which may from time to time become a party
to this Guaranty pursuant to Section 24 (collectively, the “ Guarantors ”, and each, a “ Guarantor ”), in favor of the
Guarantied Parties referred to below.
W I T N E S S E T H:
WHEREAS, Helen of Troy L.P., a Texas limited partnership, has entered into an Amended and Restated
Credit Agreement, dated as of January 16, 2015, among Helen of Troy Limited a Bermuda company (“ Limited ”),
the Lenders party thereto, and Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C
Issuer (hereinafter, the “ Administrative Agent ”) for the Lenders, as amended by that certain First Amendment to
Amended and Restated Credit Agreement, dated as of December 7, 2016 and that certain Second Amendment,
Assumption, Consent and Ratification Agreement dated March 1, 2018 (the Second Amendment ”) (said Credit
Agreement, as it has and may further be amended, supplemented or otherwise modified from time to time, being the
“ Credit Agreement ”, and capitalized terms not defined herein but defined therein being used herein as therein
defined); and
WHEREAS, in connection with the Second Amendment, (i) Helen of Troy L.P. has assigned to Helen of
Troy Texas Corporation all of its rights and obligations under the Credit Agreement and the other Loan Documents,
and (ii) Helen of Troy Texas Corporation has assumed all of Helen of Troy L.P.’s rights and obligations under the
Credit Agreement and the other Loan Documents.
WHEREAS, the Borrower and each of the Guarantors are members of the same consolidated group of
companies and are engaged in operations which require financing on a basis in which credit can be made available
from time to time to the Borrower and the Guarantors, and the Guarantors will derive direct and indirect economic
benefit from the Revolving Loans, Swing Line Loans and Letters of Credit under the Credit Agreement; and
WHEREAS, pursuant to the Credit Agreement, the Guarantors executed that certain Guaranty dated as of
January 16, 2015 as supplemented by that certain Guaranty Supplement No. 1, dated March 18, 2016 and that certain
Guaranty Supplement No. 2, dated December 7, 2016 (collectively, the “ Existing Guaranty Agreement ”). The
parties hereto desire to amend and restate the Existing Guaranty Agreement pursuant to the terms of this Guaranty;
WHEREAS, it is a condition precedent to the obligation of the Lenders to make Loans and issue and/or
participate in Letters of Credit under the Credit Agreement that the Guarantors shall have executed and delivered this
Guaranty; and
WHEREAS, the Lenders, the Administrative Agent, any Lender or Affiliate of any Lender entering into a
Swap Contract (provided that such Lender was a Lender at the time such Swap Contract was entered into) with the
Borrower or any Subsidiary of the Borrower (such Swap Contract, a “ Guarantied Swap Contract ”), and the
beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document are herein
referred to as the “ Guarantied Parties ”;
NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make Revolving Loans,
the Swing Line Lender to make Swing Line Loans and the L/C Issuer to issue Letters of Credit, the Guarantors
hereby agree as follows:
SECTION 1. Guaranty . The Guarantors hereby jointly and severally unconditionally and irrevocably
guarantee the full and prompt payment when due, whether at stated maturity, by acceleration or otherwise, of, and
the performance of, (a) the Obligations, whether now or hereafter existing and whether for principal, interest, fees,
expenses or otherwise, (b) all obligations owed to any Guarantied Party pursuant to a Guarantied Swap Contract,
excluding any Excluded Swap Obligations of a Guarantor, (c) any and all reasonable out-of-pocket expenses
(including, without limitation, reasonable expenses and reasonable counsel fees and expenses of the Administrative
Agent and the Lenders) incurred by any of the Guarantied Parties in enforcing any rights under this Guaranty and
(d) all present and future amounts that would become due but for the operation of any provision of Debtor Relief
Laws, and all present and future accrued and unpaid interest, including, without limitation, all post-petition interest if
the Borrower or any Guarantor voluntarily or involuntarily becomes subject to any Debtor Relief Laws (the items set
forth in clauses (a), (b), (c) and (d) immediately above being herein referred to as the “ Guarantied Obligations
”). Upon failure of the Borrower to pay any of the Guarantied Obligations when due after the giving by the
Administrative Agent and/or the Lenders of any notice and the expiration of any applicable cure period in each case
provided for in the Credit Agreement and other Loan Documents (whether at stated maturity, by acceleration or
otherwise), the Guarantors hereby further jointly and severally agree to promptly pay the same after the Guarantors’
receipt of notice from the Administrative Agent of the Borrower’s failure to pay the same, without any other demand
or notice whatsoever, including without limitation, any notice having been given to any Guarantor of either the
acceptance by the Guarantied Parties of this Guaranty or the creation or incurrence of any of the Guarantied
Obligations. This Guaranty is an absolute guaranty of payment and performance of the Guarantied Obligations and
not a guaranty of collection, meaning that it is not necessary for the Guarantied Parties, in order to enforce payment
by the Guarantors, first or contemporaneously to accelerate payment of any of the Guarantied Obligations, to
any
institute suit
Collateral. Notwithstanding anything herein or in any other Loan Document to the contrary, in any action or
.proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or other
law affecting the rights of creditors generally, if, as a result of applicable law relating to fraudulent conveyance or
fraudulent transfer, including Section 548 of Bankruptcy Code or any applicable provisions of comparable state law
(collectively, “ Fraudulent Transfer Laws ”), the obligations of any Guarantor under this Section 1 would otherwise,
after giving effect to (a) all other liabilities of such Guarantor, contingent or otherwise, that are relevant under such
Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor in respect of
intercompany Indebtedness to the Borrower to the extent that such Indebtedness would be discharged in an amount
equal to the amount paid by such Guarantor hereunder) and (b) to the value as assets of such Guarantor (as
determined under the applicable provisions of such Fraudulent Transfer Laws) of any rights of subrogation,
contribution, reimbursement, indemnity or similar rights held by such Guarantor pursuant to (i) applicable
requirements of Law, (ii) Section 10 hereof or (iii) any other contractual obligations providing for an equitable
allocation among such Guarantor and other Subsidiaries or Affiliates of the Borrower of obligations arising under
this Guaranty or other guaranties of the Guarantied Obligations by such parties, be held or determined to be void,
invalid or unenforceable, or subordinated to the claims of any other
or to enforce any rights against
any rights against
any Loan Party,
or exhaust
2
creditors, on account of the amount of its liability under this Section 1 , then the amount of such liability shall,
without any further action by such Guarantor, any Lender, the Administrative Agent or any other Person, be
automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
SECTION 2. Guaranty Absolute . Each Guarantor guarantees that the Guarantied Obligations will be paid
strictly in accordance with the terms of the Credit Agreement, the Notes and the other Loan Documents, without set-
off or counterclaim, and regardless of any Applicable Law now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Guarantied Parties with respect thereto. The liability of each Guarantor under this
Guaranty shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of any other Loan Document or any other
agreement or instrument relating to any Loan Document, or avoidance or subordination of any of the Guarantied
Obligations;
(b) any change in the time, manner or place of payment of, or in any other term of, or any increase in the
amount of, all or any of the Guarantied Obligations, or any other amendment or waiver of any term of, or any
consent to departure from any requirement of, the Credit Agreement, the Notes or any of the other Loan Documents;
(c) any exchange, release or non-perfection of any Lien on any collateral for, or any release of any Loan
Party or amendment or waiver of any term of any other guaranty of, or any consent to departure from any
requirement of any other guaranty of, all or any of the Guarantied Obligations;
(d) the absence of any attempt to collect any of the Guarantied Obligations from the Borrower or from
any other Loan Party or any other action to enforce the same or the election of any remedy by any of the Guarantied
Parties;
(e) any waiver, consent, extension, forbearance or granting of any indulgence by any of the Guarantied
Parties with respect to any provision of any other Loan Document;
(f) the election by any of the Guarantied Parties in any proceeding under any Debtor Relief Law;
(g) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under any
Debtor Relief Law; or
(h) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of
the Borrower or any Guarantor other than payment or performance of the Guarantied Obligations.
SECTION 3. Waiver .
(a) Each Guarantor hereby (i) waives, to the extent permitted by Applicable Law, (A) promptness,
diligence, and, except as otherwise provided herein, notice of acceptance and any and all other notices, including,
without limitation, notice of intent to accelerate and notice
3
of acceleration, with respect to any of the Guarantied Obligations or this Guaranty, (B) any requirement that any of
the Guarantied Parties protect, secure, perfect or insure any security interest in or other Lien on any property subject
thereto or exhaust any right or take any action against the Borrower or any other Person or any collateral, (C) the
filing of any claim with a court in the event of receivership or bankruptcy of the Borrower or any other Person,
(D) except as otherwise provided herein, protest or notice with respect to nonpayment of all or any of the Guarantied
Obligations, (E) the benefit of any statute of limitation relating to the collection of the Obligations against the
Borrower, (F) except as otherwise provided herein, all demands whatsoever (and any requirement that demand be
made on the Borrower or any other Person as a condition precedent to such Guarantor’s obligations hereunder),
(G) all rights by which any Guarantor might be entitled to require suit on an accrued right of action in respect of any
of the Guarantied Obligations or require suit against the Borrower or any other Guarantor or Person, whether arising
pursuant to Section 43.002 of the Texas Civil Practice and Remedies Code, as amended, Section 17.001 of the Texas
Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or
otherwise, (H) any defense based upon an election of remedies by any Guarantied Party, or (I) notice of any events or
circumstances set forth in clauses (a) through (h) of Section 2 hereof; and (ii) covenants and agrees that, except as
otherwise agreed by the parties, this Guaranty will not be discharged except by complete payment and performance
of the Guarantied Obligations and any other obligations of such Guarantor contained herein.
(b) If, in the exercise of any of its rights and remedies in accordance with the provisions of Applicable
Law, any of the Guarantied Parties shall forfeit any of its rights or remedies, including, without limitation, its right
to enter a deficiency judgment against the Borrower or any other Person, whether because of any Applicable Law
pertaining to “election of remedies” or the like, each Guarantor hereby consents to such action by such Guarantied
Party and waives any claim against the Guarantied Parties based upon such action. Any election of remedies which,
by reason of such election, results in the denial or impairment of the right of such Guarantied Party to seek a
deficiency judgment against the Borrower shall not impair the obligation of such Guarantor to pay the full amount of
the Guarantied Obligations or any other obligation of such Guarantor contained herein.
(c) In the event any of the Guarantied Parties shall bid at any foreclosure or trustee’s sale or at any
private sale permitted by Law or under any of the Loan Documents, to the extent not prohibited by Applicable Law,
such Guarantied Party may bid all or less than the amount of the Guarantied Obligations and the amount of such bid,
if successful, need not be paid by such Guarantied Party but shall be credited against the Guarantied Obligations.
(d) Each Guarantor agrees that notwithstanding the foregoing and without limiting the generality of the
foregoing if, after the occurrence and during the continuance of an Event of Default, the Guarantied Parties are
prevented by Applicable Law from exercising their respective rights to accelerate the maturity of the Guarantied
Obligations, to collect interest on the Guarantied Obligations, or to enforce or exercise any other right or remedy
with respect to the Guarantied Obligations, or the Administrative Agent is prevented from taking any action to
realize on the Collateral, such Guarantor agrees to pay to the Administrative Agent for the account of the Guarantied
Parties, upon demand therefor, for application to the Guarantied Obligations, the amount that would otherwise have
been due and payable had such rights and remedies been permitted to be exercised by the Guarantied Parties.
4
(e) Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of
the Borrower and of each other Loan Party, and of all other circumstances bearing upon the risk of nonpayment of
the Guarantied Obligations or any part thereof, that diligent inquiry would reveal. Each Guarantor hereby agrees that
the Guarantied Parties shall have no duty to advise any Guarantor of information known to any of the Guarantied
Parties regarding such condition or any such circumstance. In the event that any of the Guarantied Parties in its sole
discretion undertakes at any time or from time to time to provide any such information to any Guarantor, such
Guarantied Party shall be under no obligation (i) to undertake any investigation not a part of its regular business
routine, (ii) to disclose any information which, pursuant to accepted or .reasonable banking or commercial finance
practices, such Guarantied Party wishes to maintain as confidential, or (iii) to make any other or future disclosures of
such information or any other information to such Guarantor.
(f) Each Guarantor consents and agrees that the Guarantied Parties shall be under no obligation to
marshal any assets in favor of any Guarantor or otherwise in connection with obtaining payment of any or all of the
Guarantied Obligations from any Person or source.
SECTION 4. Representations and Warranties . Each Guarantor hereby represents and warrants to the
Guarantied Parties that the representations and warranties set forth in Article V of the Credit Agreement as they
relate to such Guarantor or to the Loan Documents to which such Guarantor is a party are true and correct in all
material respects in the manner specified in the Credit Agreement and the Guarantied Parties shall be entitled to rely
on each of them as if they were fully set forth herein.
SECTION 5. Amendments, Etc . No amendment or waiver of any provision of this Guaranty nor consent
to any departure by any Guarantor herefrom shall in any event be effective unless the same shall be in writing,
approved by the Required Lenders (or by all the Lenders where the approval of each Lender is required under the
Credit Agreement) and signed by the Administrative Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 6. Addresses for Notices . All notices and other communications provided for hereunder shall
be effectuated in the manner provided for in Section 10.02 of the Credit Agreement, provided that if a notice or
communication hereunder is sent to a Guarantor, said notice shall be addressed to such Guarantor, in care of the
Borrower at the Borrower’s then current address (or facsimile number) for notice under the Credit Agreement.
SECTION 7. No Waiver; Remedies .
(a) No failure on the part of any Guarantied Party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude
any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by Applicable Law or any of the other Loan Documents.
(b) No waiver by the Guarantied Parties of any default shall operate as a waiver of any other default or
the same default on a future occasion, and no action by any of the Guarantied Parties permitted hereunder shall in
way affect or impair any of the rights of the
5
Guarantied Parties or the obligations of any Guarantor under this Guaranty or under any of the other Loan
Documents, except as specifically set forth in any such waiver. Any determination by a court of competent
jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Guarantied
Obligations shall be conclusive and binding on each Guarantor irrespective of whether such Guarantor was a party to
the suit or action in which such determination was made.
SECTION 8. Right of Set-off . Upon the occurrence .and during the continuance of any Event of Default
under the Credit Agreement, each of the Guarantied Parties is hereby authorized at any time and from time to time, to
the fullest extent permitted by Applicable Law, to set-off and apply any and all deposits (general or special (except
trust and escrow accounts), time or demand, provisional or final) at any time held and other Indebtedness at any time
owing by such Guarantied Party to or for the credit or the account of each Guarantor against any and all of the
obligations of such Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such
Guarantied Party shall have made any demand under this Guaranty; provided , however , such Guarantied Party
shall promptly notify such Guarantor and the Borrower after such set-off and the application made by such
Guarantied Party. The rights of each Guarantied Party under this Section 8 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such Guarantied Party may have.
SECTION 9. Continuing Guaranty; Transfer of Notes . This Guaranty (a)(i) is a continuing guaranty and
shall remain in full force and effect until the date that the Aggregate Commitments have been terminated, all Loans
and other Obligations have been paid in full and no Letters of Credit are outstanding and all obligations and liabilities
in respect of Swap Obligations owed to any Guarantied Party have been paid in full (the “ Release Date ”) and
(ii) binding upon each Guarantor, its permitted successors and assigns, and (b) inures to the benefit of and be
enforceable by the Guarantied Parties and their respective successors, permitted transferees, and permitted
assigns. Without limiting the generality of the foregoing clause (b), each of the Guarantied Parties may assign or
otherwise transfer any Note held by it or the Guarantied Obligations owed to it to any other Person, and such other
Person shall thereupon become vested with all the rights in respect thereof granted to such Guarantied Party herein or
otherwise with respect to such of the Notes and the Guarantied Obligations so transferred or assigned, subject,
however,
to compliance with the provisions of Section 10.06 of the Credit Agreement in respect of
assignments. Except as the result of the consummation of a transaction permitted under Section 7.04 or 7.05 of the
Credit Agreement, no Guarantor may assign any of its obligations under this Guaranty without first obtaining the
written consent of the Lenders as set forth in the Credit Agreement. If upon any merger, dissolution, liquidation or
consolidation permitted under Section 7.04 of the Credit Agreement or any Disposition permitted by Section 7.05 of
the Credit Agreement, a Guarantor no longer exists or is no longer a Subsidiary of Limited, such Guarantor shall be
released of its obligations hereunder.
SECTION 10. Reimbursement . To the extent that any Guarantor shall be required hereunder to pay a
portion of the Guarantied Obligations exceeding the greater of (a) the amount of the economic benefit actually
received by such Guarantor from the Loans and the Letters of Credit and (b) the amount such Guarantor would
otherwise have paid if such Guarantor had paid the aggregate amount of the Guarantied Obligations (excluding the
amount thereof repaid by the Borrower) in the same proportion as such Guarantor’s net worth at the date
enforcement is sought hereunder bears to the aggregate net worth of all the Guarantors at the date enforcement is
6
sought hereunder, then such Guarantor shall be reimbursed by such other Guarantors for the amount of such excess,
pro rata, based on the respective net worths of such other Guarantors at the date enforcement hereunder is
sought. Notwithstanding anything to the contrary, each Guarantor agrees that the Guarantied Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing its
guaranty herein or effecting the rights and remedies of the Guarantied Parties hereunder. This Section 10 is intended
only to define the relative rights of the Guarantors, and nothing set forth in this Section 10 is intended to or shall
impair. the obligations of the Guarantors, jointly and severally, to pay to the Guarantied Parties the Guarantied
Obligations as and when the same shall become due and payable in accordance with the terms hereof.
SECTION 11. Reinstatement . This Guaranty shall remain in full force and effect and continue to be
effective should any petition be filed by or against any Loan Party for liquidation or reorganization, should any Loan
Party become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of any Loan Party’s assets, and shall, to the fullest extent permitted by
Applicable Law, continue to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Guarantied Obligations, or any part thereof, is, pursuant to Applicable Law, rescinded or reduced
in amount, or must otherwise be restored or returned by any obligees of the Guarantied Obligations or such part
thereof, whether as a “voidable preference,” “fraudulent transfer,” or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Guarantied Obligations shall, to the fullest extent permitted by law, be reinstated and deemed reduced
only by such amount paid and not so rescinded, reduced, restored or returned.
SECTION 12. GOVERNING LAW .
(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT EACH PARTY SHALL RETAIN ALL
RIGHTS ARISING UNDER FEDERAL LAW.
(b) The parties hereto agree that Chapter 346 (other than 346.004) of the Texas Finance Code (which
regulates certain revolving credit accounts and revolving tri-party accounts) shall not apply to Loans under this
Guaranty.
(c) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS SITTING IN
DALLAS COUNTY, TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS (DALLAS DIVISION), AND BY EXECUTION, DELIVERY AND ACCEPTANCE OF
THE ADMINISTRATIVE AGENT AND EACH LENDER
THIS GUARANTY,
TO THE NON-EXCLUSIVE
CONSENTS,
JURISDICTION OF THOSE COURTS. EACH GUARANTOR, THE ADMINISTRATIVE AGENT AND EACH
LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON
CONVENIENS
, WHICH IT MAY NOW OR
FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
EACH GUARANTOR,
7
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO.
EACH
GUARANTOR, THE ADMINISTRATIVE AGENT AND EACH LENDER WAIVES PERSONAL SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY THE LAW OF SUCH STATE.
SECTION 13. Waiver of Jury Trial . EACH GUARANTOR, THE ADMINISTRATIVE AGENT AND
EACH LENDER HEREBY (OR BY ACCEPTANCE HEREOF) EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN
DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF ANY ONE OR MORE OF EACH GUARANTOR, THE BORROWER, THE ADMINISTRATIVE AGENT
AND EACH LENDER WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH OF THE GUARANTORS, THE
ADMINISTRATIVE AGENT AND EACH LENDER HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY OF THE GUARANTORS, THE ADMINISTRATIVE AGENT AND EACH LENDER
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH GUARANTOR, THE ADMINISTRATIVE AGENT AND
EACH LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 14. Section Titles . The Section titles contained in this Guaranty are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of this Guaranty.
SECTION 15. Execution in Counterparts . This Guaranty may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one and the same Guaranty.
SECTION 16. Miscellaneous . All references herein to the Borrower or to any Guarantor shall include their
respective successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession of or for
the Borrower or such Guarantor. All references to the singular shall be deemed to include the plural where the
context so requires.
SECTION 17. Subrogation and Subordination .
(a) Subrogation . Notwithstanding any reference to subrogation contained herein to the contrary, until
the Release Date, each Guarantor hereby irrevocably waives any claim or other rights which it may have or hereafter
acquire against the Borrower that arise from the existence, payment, performance or enforcement of such
Guarantor’s obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, indemnification, any right to participate in any claim or remedy of any Lender against the
Borrower or any collateral which any Lender now has or hereafter acquires, whether
8
or not such claim, remedy or right arises in equity, or under contract, statutes or common law, including without
limitation, the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off
or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to
any Guarantor in violation of the preceding sentence and the Guarantied Obligations shall not have been paid in full,
such amount shall be deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit
of, the Lenders, and shall forthwith be paid to the Administrative Agent to be credited and applied upon the
Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement. Each
Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements
contemplated by the Credit Agreement and that the waiver set forth in this Section 17 is knowingly made in
contemplation of such benefits.
(b) Subordination . All debt and other liabilities of the Borrower to any Guarantor (“ Borrower Debt ”)
are expressly subordinate and junior to the Guarantied Obligations and any instruments evidencing the Borrower
Debt to the extent provided below.
(i) Until the Release Date, each Guarantor agrees that it will not request, demand, accept, or
receive (by set-off or other manner) any payment amount, credit or reduction of all or any part of the amounts
owing under the Borrower Debt or any security therefor, .except as specifically allowed pursuant to clause (ii)
below;
(ii) Notwithstanding the provisions of clause (i) above, the Borrower may pay to the Guarantors
and the Guarantors may request, demand, accept and receive and retain from the Borrower payments, credits
or reductions of all or any part of the amounts owing under the Borrower Debt or any security therefor on the
Borrower Debt, provided that the Borrower’s right to pay and the Guarantors’ right to receive any such
amount shall automatically and be immediately suspended and cease (A) upon the occurrence and during the
continuance of an Event of Default or (B) if, after taking into account the effect of such payment, an Event of
Default would occur and be continuing. The Guarantors’ right to receive amounts under this clause (ii)
(including any amounts which theretofore may have been suspended) shall automatically be reinstated at such
time as the Event of Default which was the basis of such suspension has been cured or waived (provided that
no subsequent Event of Default has occurred) or such earlier date, if any, as the Administrative Agent gives
notice to the Guarantors of reinstatement by the Required Lenders, in the Required Lenders’ sole discretion;
(iii) If any Guarantor receives any payment on the Borrower Debt in violation of this Guaranty,
such Guarantor will hold such payment in trust for the Lenders and will immediately deliver such payment to
the Administrative Agent; and
(iv) In the event of the commencement or joinder of any suit, action or proceeding of any type
(judicial or otherwise) or proceeding under any Debtor Relief Law against the Borrower (an “ Insolvency
Proceeding ”) and subject to court orders issued pursuant to the Bankruptcy Code, the Guarantied Obligations
shall first be paid, discharged and performed in full before any payment or performance is made upon the
Borrower Debt notwithstanding any other provisions which may be made in such Insolvency Proceeding. In
the event of any Insolvency Proceeding, each Guarantor will at any time prior to the Release Date (A) file, at
the request of any Guarantied Party, any
9
claim, proof of claim or similar instrument necessary to enforce the Borrower’s obligation to pay the
Borrower Debt, and (B) hold in trust for and pay to the Guarantied Parties any and all monies, obligations,
property, stock dividends or other assets received in any such proceeding on account of the Borrower Debt in
order that the Guarantied Parties may apply such monies or the cash proceeds of such other assets to the
Obligations.
SECTION 18. Guarantor Insolvency . Should any Guarantor voluntarily seek, consent to, or acquiesce in the
benefits of any Debtor Relief Law or become a party to or be made the subject of any proceeding provided for by any
Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights of
any Guarantied Party granted hereunder, then, the obligations of such Guarantor under this Guaranty shall be, as
between such Guarantor and such Guarantied Party, a fully-matured, due, and payable obligation of such Guarantor
to such Guarantied Party (without regard to whether there is an Event of Default under the Credit Agreement or
whether any part of the Guarantied Obligations is then due and owing by the Borrower to such Guarantied Party),
payable in full by such Guarantor to such Guarantied Party upon demand, which shall be the estimated amount owing
in respect of the contingent claim created hereunder.
SECTION 19. Rate Provision . It is not the intention of any Guarantied Party to make an agreement
violative of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in this Guaranty, no
Guarantied Party shall ever be entitled to contract, charge, receive, collect or apply, as interest on the Guarantied
Obligations, any amount in excess of the Highest Lawful Rate. In no event shall any Guarantor be obligated to pay
any amount in excess of the Highest Lawful Rate. If from any circumstance the Administrative Agent or any
Guarantied Party shall ever receive, collect or apply anything of value deemed excess interest under Applicable Law,
an amount equal to such excess shall be applied to the reduction of the principal amount of outstanding Revolving
Loans, Swing Line Loans, L/C Borrowings and any remainder shall be promptly refunded to the payor. In
determining whether or not interest paid or payable with respect to the Guarantied Obligations, under any specified
contingency, exceeds the Highest Lawful Rate, the Guarantors and the Guarantied Parties shall, to the maximum
extent permitted by Applicable Law, (a) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (b) amortize, prorate, allocate and spread the total amount of interest throughout the full term
of such Guarantied Obligations so that the interest paid on account of such Guarantied Obligations does not exceed
the Highest Lawful Rate and/or (c) allocate interest between portions of such Guarantied Obligations; provided that
if the Guarantied Obligations are paid and performed in full prior to the end of the full contemplated term thereof,
and if the interest received for the actual period of existence thereof exceeds the Highest Lawful Rate, the Guarantied
Parties shall refund to the payor the amount of such excess or credit the amount of such excess against the total
principal amount owing, and, in such event, no Guarantied Party shall be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the Highest Lawful Rate.
SECTION 20. Severability . Any provision of this Guaranty which is for any reason prohibited or found or
held invalid or unenforceable by any court or governmental agency shall be ineffective to the extent of such
prohibition or invalidity or unenforceability, without invalidating the remaining provisions hereof in such jurisdiction
or affecting the validity or enforceability of such provision in any other jurisdiction.
10
SECTION 21. Taxes .
(a) Any and all payments by or on account of any obligations of the Guarantors hereunder shall be made
free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if
any Guarantor shall be required by Applicable Law to deduct any Indemnified Taxes (including any Other Taxes)
from such payments, then (i) the sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under this Section) the applicable Guarantied
Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) such
Guarantor shall make such deductions and (iii) such Guarantor shall timely pay the full amount deducted to the
relevant Governmental Authority in accordance with Applicable Law.
(b) Without limiting the provisions of subsection (a) above, the Guarantors shall timely pay any Other
Taxes to the relevant Governmental Authority in accordance with Applicable Law.
(c) The Guarantors shall indemnify each Guarantied Party, within 10 days after demand therefor, for the
full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or
.asserted on or attributable to amounts payable under this Section) paid by such Guarantied Party and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as
to the amount of such payment or liability delivered to the Guarantors by such Guarantied Party (with a copy to the
Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of any Guarantied Party shall
be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Guarantor to a
Governmental Authority, such Guarantor shall deliver to the Administrative Agent the original or a certified copy of
a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such
payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) If any Guarantied Party determines, in its sole discretion, that it has received a refund of any Taxes or
Other Taxes as to which it has been indemnified by any Guarantor or with respect to which any Guarantor has paid
additional amounts pursuant to this Section, it shall pay to such Guarantor an amount equal to such refund (but only
to the extent of indemnity payments made, or additional amounts paid, by such Guarantor under this Section with
respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Guarantied
Party, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such
refund), provided that such Guarantor, upon the request of such Guarantied Party, agrees to repay the amount paid
over to such Guarantor (plus any penalties, interest or other charges imposed by the relevant Governmental
Authority) to such Guarantied Party in the event such Guarantied Party is required to repay such refund to such
Governmental Authority. This subsection shall not be construed to require any Guarantied Party to make available
its tax returns (or any other information relating to its taxes that it deems confidential) to the Guarantors or any other
Person.
11
(f) The obligations of each Guarantor and Guarantied Party under this Section 21 shall survive
termination of the Aggregate Commitments and repayment of all Guarantied Obligations.
SECTION 22. Judgment Currency . If, for the purposes of obtaining judgment in any court, it is necessary
to convert a sum due hereunder in one currency into another currency, the rate of exchange used shall be that at
which in accordance with normal banking procedures the Administrative Agent could purchase the first currency
with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the
Guarantors in respect of any such sum due from it to the Guarantied Parties hereunder shall, notwithstanding any
judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance
with the applicable provisions of the Credit Agreement (the “ Agreement Currency ”), be discharged only to the
extent that on the Business Day following receipt by the Administrative Agent of any sum adjudged to be so due in
the Judgment Currency, the Administrative Agent may in accordance with normal banking procedures purchase the
Agreement Currency with the Judgment Currency. To the extent permitted by Applicable Law, if the amount of the
Agreement Currency so purchased is less than the sum originally due to the Administrative Agent from the
Guarantors in the Agreement Currency after taking into account any set-offs or counterclaims of any Loan Party
against the Person to whom such obligation was owing on which a final judgment has been rendered, the Guarantors
agree, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or the
Person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so
purchased is greater than the sum originally due to the Administrative Agent in such currency, the Administrative
Agent agrees to return the amount of any excess to the Guarantors (or to any other Person who may be entitled
thereto under Applicable Law).
SECTION 23. Keepwell . Each Guarantor which is a Qualified ECP Guarantor hereby acknowledges and
agrees to its undertakings under Section 10.21 of the Credit Agreement.
SECTION 24. Additional Guarantors . Upon the execution and delivery by any other Person of a Guaranty
Supplement in substantially the form of Exhibit A (a “ Guaranty Supplement ”), such Person shall become a
“Guarantor” hereunder with the same force and effect as if originally named as a Guarantor herein. The execution
and delivery of any Guaranty Supplement shall not require the consent of any other Guarantor hereunder. The rights
and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any
new Guarantor as a party to this Guaranty.
SECTION 25. Amendment and Restatement . The Guarantors previously executed and delivered the
Existing Guaranty Agreement in favor of the Guarantied Parties (as defined in the Existing Guaranty
Agreement). This Guaranty is an amendment and restatement of the Existing Guaranty Agreement and is a
“Guaranty” as defined in the Credit Agreement. Each Guarantor affirms its obligations pursuant to the Existing
Guaranty Agreement and agrees that this Guaranty amends and restates the Existing Guaranty Agreement in its
entirety. This Guaranty is not intended as, and shall not be construed as, a release or novation of any obligation of
any Guarantor pursuant to the Existing Guaranty Agreement.
SECTION 26. ENTIRE AGREEMENT . THIS GUARANTY AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
12
REGARDING THE SUBJECT MATTER HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
13
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered by its
duly authorized officer on the date first above written.
GUARANTORS :
HELEN OF TROY L.P.,
a Texas limited partnership
By: HELEN OF TROY NEVADA CORPORATION,
a Nevada corporation, General Partner
HELEN OF TROY LIMITED,
a Bermuda company
HELEN OF TROY LIMITED,
a Barbados corporation
HOT NEVADA, INC.,
a Nevada corporation
HELEN OF TROY NEVADA CORPORATION,
a Nevada corporation
HELEN OF TROY TEXAS CORPORATION,
a Texas corporation
IDELLE LABS LTD.,
a Texas limited partnership
By: HELEN OF TROY NEVADA CORPORATION,
a Nevada corporation, General Partner
OXO INTERNATIONAL LTD.,
a Texas limited partnership
By: HELEN OF TROY NEVADA CORPORATION,
a Nevada corporation, General Partner
PUR WATER PURIFICATION PRODUCTS, INC.,
a Nevada corporation
KAZ, INC.,
a New York corporation
KAZ USA, INC.,
a Massachusetts corporation
KAZ CANADA, INC.,
a Massachusetts corporation
STEEL TECHNOLOGY, LLC,
an Oregon limited liability company
HD HOLDING INC.,
a Nevada corporation
Signature
Page
to
Guaranty
By:
/s/ Brian L. Grass
Brian L. Grass
Title for all: Chief Financial Officer
HELEN OF TROY MACAO COMMERCIAL
OFFSHORE LIMITED,
a Macau corporation
By:
/s/ Vincent D. Carson
Vincent D. Carson
Manager
NOTARIAL CERTIFICATE OF Brian L. Grass
NOTARY PUBLIC DO HEREBY CERTIFY AND ATTEST that on the day of the date hereof personally came and
appeared before me Brian L. Grass, the duly authorized Chief Financial Officer of Helen of Troy Limited, a
Barbados corporation, one of the executing parties to the within written document and did in my presence sign and
deliver the same as and for his free and voluntary act and deed.
IN FAITH AND TESTIMONY WHEREOF I the said Rosemary Vasquez have hereunto set and subscribed my
name and caused my Seal of Office to be hereunto put and affixed this 27 day of February , 2018.
Signature
Page
to
Guaranty
/s/ Brian L. Grass
Name in print
Brian L. Grass, Chief Financial Officer
[SEAL]
Signed Sealed and Delivered as a
Deed by Helen of Troy Limited ,
a Barbados company,
by Order of the Board
In the presence of:
/s/ Rosemary Vasquez
Notary Public
GUARANTY SUPPLEMENT NO.
EXHIBIT A to Guaranty
THIS GUARANTY SUPPLEMENT NO. (this “ Guaranty Supplement ”) is made as of
, to the Amended and Restated Guaranty dated as of March 1, 2018 (such agreement, together with
all amendments and restatements, the “ Guaranty ”), among the initial signatories thereto and each other Person
which from time to time thereafter became a party thereto pursuant to Section 24 thereof (each, individually, a “
Guarantor ” and, collectively, the “ Guarantors ”), in favor of the Guarantied Parties (as defined in the Guaranty).
BACKGROUND .
Capitalized terms not otherwise defined herein have the meaning specified in the Guaranty. The Guaranty
provides that additional parties may become Guarantors under the Guaranty by execution and delivery of this form of
Guaranty Supplement. Pursuant to the provisions of Section 24 of the Guaranty, the undersigned is becoming an
Additional Guarantor under the Guaranty. The undersigned desires to become a Guarantor under the Guaranty in
order to induce the Guarantied Parties to continue to make credit extensions and accommodations under the Loan
Documents.
AGREEMENT .
NOW, THEREFORE, the undersigned agrees with the Administrative Agent and each other Guarantied Party
as follows:
SECTION 1. In accordance with the Guaranty, the undersigned hereby becomes a Guarantor under the
Guaranty with the same force and effect as if it were an original signatory thereto as a Guarantor and the undersigned
hereby (a) agrees to all the terms and provisions of the Guaranty applicable to it as a Guarantor thereunder and
(b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and
correct on and as of the date hereof. Each reference to a “Guarantor” or an “Additional Guarantor” in the Guaranty
shall be deemed to include the undersigned.
SECTION 2. Except as expressly supplemented hereby, the Guaranty shall remain in full force and effect in
accordance with its terms.
SECTION 3. THIS GUARANTY SUPPLEMENT AND THE GUARANTY SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS.
SECTION 4. This Guaranty Supplement hereby incorporates by reference the provisions of the Guaranty,
which provisions are deemed to be a part hereof, and this Guaranty Supplement shall be deemed to be a part of the
Guaranty.
Exhibit A to Guaranty
SECTION 5. This Guaranty Supplement may be executed by the parties hereto in several counterparts, each
of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK .
Exhibit A to Guaranty
EXECUTED as of the date above first written.
ADDRESS:
[ADDITIONAL GUARANTOR]
Attention:
By:
Print Name:
Print Title:
ACCEPTED AND AGREED TO BY:
BANK OF AMERICA, N.A., as Administrative Agent
By:
Print Name:
Print Title:
Exhibit A to Guaranty
FIRST AMENDMENT TO
HELEN OF TROY LIMITE D
2008 EMPLOYEE STOCK PURCHASE PLAN
Exhibit 10.30
This First Amendment (this “ Amendment ”) to Helen of Troy Limited 2008 Employee Stock Purchase Plan (the “
Plan ”) is appro ved by the Board of Directors of Helen of Troy Limited on this 25 day of August, 2009 and is
effective as of the same date.
Article I
DEFINIT IONS
All capitalized terms not defined h erein shall have the meaning assigned to them in the Plan.
Article II
AMENDMENTS
1. Section 1 . The following sentence is hereby added immed iate ly following the second sentence of
Section 1 of the Plan:
“ This Plan also authorizes the grant of options t hat do not qualify under Section 423 of the Code (the “ Non
-423 Plan ”) pursuant to the rules , procedures, or sub plans adopted by the Committee designed to
accommodate the s pecific requirements of la ws and procedures in non-United S tates jurisdictions. Except
as otherwise indicated, the Section 423 Plan (as defined below) and the Non-423 Plan will operate and be
administered in the same manner.”
2. Section 2(g) . The following sentence i s hereby added immediately following the first sentence of
Section 2(g) of the Plan:
“If a Subsidiary has been design ated by the Board or Committee as eligible to participate in this Plan, the
Committee shall determine whether s uch Designat ed Subsidiary shall participate in the Section 423 Plan or
the Non-423 Plan.”
3. Section 2(r), 2 (s) and 2(t) . The following definitions are hereby added in Section 2 of the Plan i n
alphabetical order, as follows:
“(r) “ Max imum Off ering ” shall mean , with r espec t to some or all Participants in the Non-423
Plan, a maximum number or value of shares of Common Stock made available in a certain period (e.g.,
12-
month period) i n specified countries, locations or Designated Subsidiaries.
(s) “ Non -423 Plan ” shall mean an employee s tock purchase plan which does not me et the
requirements set for th in Section 423 of the Code.
1
(t) “ Section 423 Plan ” shall mean an employee stock purchase plan which is designed to meet the
requirements set forth in Section 423 of the Code. The provisions of the Section 423 Plan shall be construed ,
administered and enforced in accordance with Section 423 of the Code.”
4. Secti o n 4.1 . Section 4.1 of the Plan is hereby amended and restated in its entirety to read as follows:
,
of
not
(15%)
the Employee
to exceed fifteen percent
“4.1 An Employee who is eligible to participate in this Plan in accordance with Section 3 may become a
Participant by filing and completing the appropriate form or following the procedures prescribed by the
Committee, in each case, on a date prescribed by the Committee prior to an applicable Entry Date.
An eligible Employee may authorize payroll deductions at the rate of any whole percentage of the
Employee’s Compensation
’
s Compensation, or such lesser percentage as specified by the Committee as applied to an Entry Date or
Option Period. An eligible Employee may authorize other contributions rather than payroll deductions to the
extent permitted by the Committee for Participants in the Non-423 Plan (or the Section 423 Plan if permitted
under the regulations for Section 423 of the Code). All payroll deductions may be held by the Company and
comming l ed with its other corporate funds. Payroll deductions under the Non-423 Plan (or the Section 423
Plan if permitted under the reg u lations for Section 423 of the Code) may be segregated from the
Company’s other corporate funds, where, as determined by the Committee, local law requires segregation
of such accounts. No interest shall be paid or credited to the Participant with respect to such payroll
deductions except where required by local law as determined by the Committee. Interest may be paid or
credited to the Participant with respect to payroll deductions where required by local law, as determ i ned by
the Committee, for Participants in the Non-423 Plan (or the Sec t ion 423 Plan if permitted under
the regulations for Section 423 of the Code) . A s e parate bookkeeping account for each Participant shall be
maintained by the Company under this Plan and the amount of each Participant’s payroll deductions shall be
credited to such account. A Participant may not make any additional payments into such account. An actual
account for each Participan t may be maintained by the Company under this Plan where required by local
law, as determined by the Committee, for Participants in the Non-423 Plan (or the Section 423 Plan if
permitted under the regulations for Section 423 of the Code).
5. Section 4 . 3 . The following provision is hereby added immediately following Section 4.2 of the Plan:
“4.3. Any references to payroll deductions in the Plan shall be read as references to payroll deductions
or other contributions. Any references in the Plan to the payment of interest (or lack thereof) shall be read in
accordance with Section 4.1 of the Plan.”
2
6. Section 5.l . The following sentence is hereby added immediate ly following the second sentence of Section
5. 1 of the Plan:
“The Committee may also specify a Maximum Offering .”
7. Section 5 .5 . The following sentences are hereby added immediately following the thi rd sentence of
Section 5.5 of the Plan:
“If the tota l number of shares of Common Stock for which options granted under this Plan are exercisable
exceeds the Maximum Offering (if any) , the number of shares which may be purchased under options
granted on the Entry Date shall be reduced on a pro rata basis in as uniform manner as shall be practicable
and equitable. In this event, payroll ded u ct i ons shall also be reduced or refunded accordingly.”
Article Ill
GENERAL
Except as expressly set forth herein, this Amendment sha ll not by implication or otherwise alter, modify, amend or
in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Plan, all of
which are ratified and affirmed in all respects and shall continue in full fo rce and effect.
3
SECOND AMENDMENT TO
HELEN OF TROY LIMITED
2008 EMPLOYEE STOCK PURCHASE PLAN
Exhibit 10.31
This Second Amendment (“ Second Amendment ”) to the Helen of Troy Limited 2008 Employee Stock Purchase
Plan (the “ Plan ”) is approved by the Board of Directors of Helen of Troy Limited on this 8th day of November,
2017 and is effective as of January 1, 2018.
Article I
DEFINITIONS
All capitalized terms not defined herein shall have the meaning assigned to them in the Plan.
Article II
AMENDMENTS
1. Section 2(f). Section 2(f) of the Plan is hereby amended and restated in its entirety to read as follows:
“2(f). “ Compensation ” shall mean an Employee’s wages or salary paid directly by (or through the payroll provider
of) the Company or a Designated Subsidiary, and which are reportable as wages or other compensation on the
Employee’s Form W-2 issued by the Company or a Designated Subsidiary, plus pre-tax contributions of the
Employee under a cash or deferred arrangement (401(k) plan) or cafeteria plan maintained by the Company or a
Designated Subsidiary, but excluding, however, (a) non-cash fringe benefits, (b) special payments as determined by
the Committee (e.g., moving expenses, unused vacation, severance pay), (c) income from the exercise of stock
options or other stock- based awards, stock purchases, or from the vesting, settlement or other event related to stock-
based awards, (d) income from bonuses and (e) any other items of Compensation as determined by the Committee.
Consistent with Section 13 of the Plan, the Committee shall have sole and absolute discretion to determine the
application of this definition to Participants in non-United States jurisdictions, in a uniform and nondiscriminatory
basis in accordance with Section 423 of the Code to the extent the option is intended to qualify under Section 423 of
the Code.”
2. Section 4.4. The following provision is hereby added immediately following Section 4.3 of the Plan:
“4.4. Subject to the discretion of the Committee, if a Participant goes on a leave of absence during which the
Participant receives Compensation, payroll deductions from Compensation on behalf of the Participant shall
continue and any amounts credited to the Participant’s individual account may be used to purchase shares of
Common Stock as provided under this Plan. If a Participant goes on a
leave of absence during which the Participant does not receive Compensation, payroll deductions taken on
behalf of the Participant shall be discontinued and no other contributions shall be permitted (unless required
by applicable law or otherwise determined by the Committee, in a uniform and nondiscriminatory basis in
accordance with Section 423 of the Code to the extent the option is intended to qualify under Section 423 of
the Code), but any amounts then credited to the Participant’s individual account may be used to purchase
shares of Common Stock on the next applicable Exercise Date. Where the period of leave exceeds three
months and the Participant’s right to employment is not guaranteed either by statute or by contract,
employment will be considered to have terminated three months and one day following the commencement of
such leave.”
Article III
GENERAL
Except as expressly set forth herein, this Second Amendment shall not by implication or otherwise alter, modify,
amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Plan,
all of which are ratified and affirmed in all respects and shall continue in full force and effect.
2
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries of the company as of February 28, 2018, omitting subsidiaries which,
considered in the aggregate, would not constitute a significant subsidiary.
Name
Incorporation
Doing Business as
Helen of Troy Limited
Barbados
Same Name
Helen of Troy Comercial Offshore de Macau
Limitada
Macau
Same Name
Helen of Troy L.P.
Idelle Labs, Ltd.
OXO International Ltd.
HOT (UK) Limited
Steel Technologies, LLC
Kaz, Inc.
Kaz USA, Inc.
Texas Limited Partnership
Same Name, Helen of Troy and Belson Products
Texas Limited Partnership
Same Name
Texas Limited Partnership
Same Name
United Kingdom
Same Name, HOT UK and OXO Goodgrips
Oregon
New York
Same Name and Hydro Flask
Same Name
Massachusetts
Same Name
Pur Water Purification Products, Inc.
Nevada
Kaz Europe Sàrl
Helen of Troy Texas Corporation
Switzerland
Texas
Same Name
Same Name
Same Name
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
The Board of Directors
Helen of Troy Limited
We have issued our reports dated April 30, 2018, with respect to the consolidated financial statements,
schedule, 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 28, 2018. We consent to the incorporation by reference of said reports in
the Registration Statements of Helen of Troy Limited on Forms S-8 (File No. 333-154525; File No. 333-154526;
File No. 333-153658; File No. 333-67349; File No. 333-90776; File No. 333-128832; and File No. 333-178217).
/s/ GRANT THORNTON LLP
Dallas, Texas
April 30, 2018
EXHIBIT 31.1
CERTIFICATION
EXHIBIT 31.1
I, Julien R. Mininberg, certify that:
1.
I have reviewed this annual report on Form 10-K of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects, the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
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: April 30, 2018
/s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer,
Director and Principal Executive Officer
EXHIBIT 31.2
CERTIFICATION
EXHIBIT 31.2
I, Brian L. Grass, certify that:
1.
I have reviewed this annual report on Form 10-K of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects, the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
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: April 30, 2018
/s/ Brian L. Grass
Brian L. Grass
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
CERTIFICATION
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 28, 2018, 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 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: April 30, 2018
/s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer,
Director and Principal Executive Officer
/s/ Brian L. Grass
Brian L. Grass
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
This certification is not deemed to be “filed” for purposes of section 18 of the Securities Exchange Act, 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.