Table of Contents
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, 2019
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
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
Securities registered pursuant to Section 12(g) of the Act: NONE
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 every Interactive Data File required to be submitted 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 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
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, 2018, based upon
the closing price of the common shares as reported by The NASDAQ Global Select Market on such date, was approximately $3,122,284,452.
As of April 22, 2019, there were 25,013,613 common shares, $0.10 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2019 Annual General Meeting of Shareholders to be filed within one hundred and twenty days of the fiscal
year ended February 28, 2019 (2019 Proxy Statement) are incorporated by reference into Part III of this report to the extent described herein.
Table of Contents
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities
Item 6.
Item 7.
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Item 13.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
PAGE
3
8
18
18
19
19
20
23
25
49
51
96
96
97
97
97
97
97
98
101
1
Table of Contents
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.
2
Table of Contents
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 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 18 in the accompanying consolidated financial statements.
Our Strategic Initiatives
In fiscal 2015, we launched a five-year transformational strategy designed to improve the performance of
our business segments and strengthen our shared service capabilities. This strategy has driven 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.
Fiscal 2019 marked the completion of Phase I of our multi-year transformation strategy, which delivered
performance across a wide range of measures. We improved core sales growth by focusing on our
Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong
global shared services, upgraded our organization and culture, improved inventory turns and return on
invested capital, and returned capital to shareholders.
Fiscal 2020 begins Phase II of our transformation and is designed to drive the next five years of
progress. The long-term objectives of Phase II include improved organic sales growth, continued margin
3
Table of Contents
expansion, and strategic and effective capital deployment. We expect Phase II will include continued
investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation,
expanding them more aggressively outside the United States, and adding new brands through
acquisition. We anticipate building further shared service capability and operating efficiency, as well as
attracting, retaining, unifying and training the best people.
On March 11, 2019, we announced that we are in the process of exploring the divestiture of our Personal
Care business, a subset of our Beauty Segment. The Personal Care business includes liquid, powder
and aerosol products under brands such as Pert, Brut, Sure and Infusium. This potential divestiture
advances our strategy to focus our resources on our Leadership Brands. Leadership Brands are brands
which have number-one and number-two positions in their respective categories and include OXO,
Honeywell, Braun, PUR, Hydro Flask, Vicks, and Hot Tools.
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
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
Hot and Cold Beverage and Food
Containers
Insulated water bottles, jugs, thermoses, drinkware, travel mugs and
food containers
Health & Home
Healthcare
Thermometers, blood pressure monitors and humidifiers
Water Filtration
Faucet mount water filtration systems and pitcher based water
filtration systems
Home Environment
Air purifiers, heaters, fans, humidifiers and dehumidifiers
Beauty
Appliances and Accessories
Personal 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 market products under a number of trademarks that we own and sell certain of our products under
trademarks licensed from third parties. 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 rely on 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 our key trademarks by segment:
Segment
Owned
Housewares
OXO, Good Grips, Hydro Flask, Soft Works, OXO tot
Health & Home PUR
Beauty
Hot Tools, Brut, Pert, Sure, Infusium
4
Licensed
Honeywell , Braun, Vicks
Revlon, Bed Head
Table of Contents
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.
Sales and Marketing
We currently market our products in over 90 countries throughout the world. Sales within the United
States comprised approximately 78%, 79% and 79% of total net sales revenue in fiscal 2019, 2018 and
2017, respectively. 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. Research and
development expenses consist primarily of salary and employee benefit expenses and contracted
development and testing efforts associated with development of products.
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 Personal Care
category of the Beauty segment sources most of its products from U.S. manufacturers. For fiscal 2019,
2018 and 2017, finished goods manufactured by vendors in the Far East comprised approximately 74%,
74% and 71%, respectively, of total finished goods purchased.
In total, we occupy approximately 4,219,800 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 16%, 17% and 17%
of our consolidated net sales revenue in fiscal 2019, 2018 and 2017, respectively. Sales to Amazon.com
Inc. accounted for approximately 16%, 13% and 10% of our consolidated net sales revenue in fiscal
2019, 2018 and 2017, respectively. Sales to Target Corporation accounted for approximately 10% of our
consolidated net sales revenue in fiscal 2019, 2018 and 2017, respectively. 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 51%, 49% and 48% of our consolidated net sales revenue in
fiscal 2019, 2018 and 2017, respectively.
5
Table of Contents
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.
Seasonality
SEASONALITY AS A PERCENTAGE OF ANNUAL NET SALES REVENUE
Fiscal Quarter Ended
May
August
November
February
Fiscal Years Ended February 28,
2019
2018
2017
22.7%
25.2%
27.6%
24.6%
22.0%
23.3%
28.5%
26.2%
22.2%
23.8%
29.3%
24.7%
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
Competitor
Housewares
Health & Home
Beauty
Lifetime Brands, Inc. (KitchenAid), Newell Brands Inc., Simple Human LLC, Yeti Holdings, Inc. (Yeti),
Can't Live Without It, Inc. (S'well), Bradshaw Home, Inc. (BradshawHome), Hewy Wine Chillers, LLC
(Corkcicle)
Exergen Corporation, Omron Healthcare, Inc., Crane Engineering, Newell Brands, Inc., Lasko Products,
LLC., The Clorox Company (Brita), Zero Technologies, LLC, Vornado Air Circulation Systems, Dyson Ltd,
Unilever (Blueair), Guardian Technologies LLC.
Conair, Spectrum Brands Holdings Inc. (Remington), Newell Brands, Inc., The Procter & Gamble
Company, Unilever N.V., Colgate-Palmolive Company
Environmental and Health and Safety 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
6
Table of Contents
product space, some requirements have already been mandated and we believe others may become
required. Examples of current requirements include conflict minerals content reporting, customer
reporting of foreign fair labor practices in connection with our supply chain vendors, and evaluating the
risks of human trafficking and slavery.
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, 2019, we employed approximately 1,500 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 or works counsel 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: http://www.helenoftroy.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.
7
Table of Contents
Item 1A. Risk Factors
Carefully consider the risks described below and all of the other information included in our 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. Further, our delivery process must often accommodate
special vendor requirements to use specific carriers and delivery schedules. Failure to deliver products
to our retailers in a timely and effective manner could damage our reputation and brands and result in
loss of customers or reduced orders, which could have a material adverse effect on our business,
operating results and financial condition.
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.
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 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
8
Table of Contents
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 32% of our consolidated net
sales revenue in fiscal 2019. While only three customers individually accounted for 10% or more of our
consolidated net sales revenue in fiscal 2019, sales to our top five customers in aggregate accounted for
approximately 51% of fiscal 2019 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, including the potential divestiture
of our Personal Care business. 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.
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;
9
Table of Contents
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 consists 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
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
10
Table of Contents
products from Chinese manufacturers in U.S Dollars. The Chinese Renminbi has fluctuated against the
U.S. Dollar in recent years. During fiscal 2019 the Chinese Renminbi strengthened against the U.S.
dollar by approximately 6.0%. Chinese Renminbi currency fluctuations have the potential to 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 use derivative financial instruments including forward contracts, cross currency debt swaps
and zero-cost collars to hedge against certain foreign currency exchange rate-risk inherent in our
transactions denominated in currencies other than the U.S. Dollar. We enter into these types of
agreements to partially mitigate our exposure to foreign currency exchange risk. 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;
• can be mitigated with currency hedging or other risk management strategies; or
• will not have a material adverse effect on our business, operating results and financial condition.
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
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 2019, 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.
11
Table of Contents
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.
If significant tariffs or other restrictions are placed on imports from China or any retaliatory trade
measures are taken by China, our business and results of operations could be materially and
adversely affected.
We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico
and the United States. This concentration exposes us to risks associated with doing business globally,
including changes in tariffs. The Office of the United States Trade Representative identified certain
Chinese imported goods for additional tariffs to address China’s trade policies and practices. These
tariffs could have a material adverse effect on our business and results of operations. Additionally, the
Trump Administration continues to signal that it may alter trade agreements and terms between China
and the United States, including limiting trade with China, imposing additional tariffs on imports from
China and potentially imposing other restrictions on exports from China to the United States.
Consequently, it is possible further and or higher tariffs will be imposed on products imported from foreign
countries, including China, or that our business will be impacted by retaliatory trade measures taken by
China or other countries in response to existing or future tariffs. This may cause us to raise prices or
make changes to our operations, any of which could have a material adverse effect on our business and
results of operations.
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 60% of our consolidated gross sales volume shipped
from facilities in this region in fiscal 2019. 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.
12
Table of Contents
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 consumers 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.
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 United Kingdom (the
“U.K.”), ongoing terrorist activity, and other global events. The potential exit of the U.K. from European
Union (the “EU”) membership (commonly referred to as “Brexit”) could cause disruptions to and create
uncertainty surrounding our business, including affecting our relationships with our existing and future
customers, suppliers and employees, which could have an adverse effect on our business, financial
13
Table of Contents
results and operations. 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;
lack of required infrastructure;
inflation (including hyperinflation) or recession;
• new restrictions on access to markets;
•
•
• 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;
•
•
•
• currency devaluations;
• expropriation of assets; and
• other adverse changes in policies, including monetary, tax or lending policies, encouraging
reduced protection of intellectual property rights in some countries;
increases in duties and taxation;
restrictions on transfer of funds or exchange of currencies;
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.
Our liquidity may be materially adversely affected by constraints in the capital and credit markets
and limitations under our financing arrangements.
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. Further, 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. These factors could materially
adversely affect our liquidity, costs of borrowing and our ability to pursue business opportunities or grow our
business, 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.
14
Table of Contents
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 cybersecurity and the integrity of internal or customer data could have a
material adverse 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 have been and will continue to be subject to ongoing threats.
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 customer or supplier 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 customer or supplier data or our
internal data, including intellectual property and other confidential business information. 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 customer and consumer relationships.
If such unauthorized disclosure or access does occur, we may be required to notify our customers,
consumers, 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. 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, 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, we may be required to devote time and expense to their resolution.
In addition, 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
15
Table of Contents
regulation, evolving industry standards, and the interpretation of both, may cause us to incur additional
expense in complying with any new data security requirements. As a result, the failure to maintain the
integrity of and protect customer or supplier data or our internal data could have a material adverse effect
on our business, operating results and financial condition.
Recent global legal developments regarding privacy and data security could result in changes to
our business practices, penalties, increased cost of operations, or otherwise harm our business.
As a global company, we are subject to global privacy and data security laws, regulations, and codes of
conduct that apply to our various business units. These laws and regulations may be inconsistent across
jurisdictions and are subject to evolving and differing interpretations. Government regulators, privacy
advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use,
store, share and transmit personal data. This increased scrutiny may result in new interpretations of
existing laws, thereby further impacting our business.
Globally, new and emerging laws, such as the General Data Protection Regulation in Europe, state laws
in the U.S. on privacy, data and related technologies, such as the California Consumer Privacy Act, as
well as industry self-regulatory codes create new compliance obligations and expand the scope of
potential liability, either jointly or severally with our customers and suppliers. While we have invested in
readiness to comply with applicable requirements, these new and emerging laws, regulations and codes
may affect our ability to reach current and prospective consumers, to respond to consumer requests
under the laws (such as individual rights of access, correction, and deletion of their personal information),
and to implement our business models effectively. The costs of compliance or failure to comply with such
laws, regulations, codes of conduct and expectations could have a material adverse impact on our
financial condition and results of operations.
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
16
Table of Contents
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 20 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.
As additional regulatory guidance is issued by the applicable taxing authorities, accounting treatment is
clarified, we perform additional analysis on the application of the law, and we refine estimates in
calculating the effect, our final analysis may be different from provisional amounts, which could materially
affect our tax obligations and effective tax rate in the period completed.
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.
Legislation enacted in Bermuda and Barbados in response to the European Union’s review of harmful
tax competition could adversely affect our operations.
In December 2017, the EU Economic and Financial Affairs Council (“ECOFIN”) released a list of non-
cooperative jurisdictions for tax purposes. The stated aim of this list, and accompanying report, was to
promote good governance worldwide in order to maximize efforts to prevent tax fraud and tax evasion. Our
jurisdiction of organization is Bermuda and one of our subsidiaries is organized in Barbados, two of the
countries identified in the ECOFIN report. As of the date of this report, Bermuda and Barbados are each
listed on the “black list” of non-cooperative jurisdictions for tax purposes. Bermuda was listed on this “black
list” of non-cooperative jurisdictions for having a tax regime that facilitates offshore structures which attract
profits without real economic activity and failing to timely satisfy its commitment to remedy the shortcomings
to the satisfaction of the EU. Barbados was listed on this “black list” of non-cooperative jurisdictions for
17
Table of Contents
having a “harmful preferential tax regime” and its attempts to amend or abolish such regime being
unsatisfactory to the EU.
In connection with the release of the ECOFIN findings, Bermuda and Barbados each enacted legislation
that requires certain entities engaged in “relevant activities” in Bermuda and Barbados to maintain a
substantial economic presence in the country, and to satisfy economic substance requirements. The list of
“relevant activities” in the respective statutes includes carrying on as a business any one or more of several
enumerated activities, such as headquarters, shipping, distribution and service center, intellectual property
and holding entities. Any entity that is required to satisfy economic substance requirements but fails to do
so could face automatic disclosure to competent authorities in the EU of the information filed by any entity
with the Bermuda Registrar of Companies and the Ministry of International Business and Industry in
Barbados, as applicable, in connection with the economic substance requirements and may also face
financial penalties, restriction or regulation of its business activities and/or may be struck off as a registered
entity in Bermuda or Barbados.
As the local authorities have not released implementing guidelines, the impact of the foregoing legislation
and developments is unclear, including whether additional or revised requirements may be enacted by
Bermuda or Barbados in response to being included on the EU’s “black list” of non-cooperative
jurisdictions for tax purposes. Accordingly, we cannot predict the effect of Bermuda’s or Barbados’s
current or future economic substance requirements on our business, which may impact the manner and
jurisdictions in which we operate, which could adversely affect our business, financial condition or results
of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of February 28, 2019, we own, lease or otherwise utilize through third-party management service
agreements, a total of 38 properties worldwide, which include selling, procurement, research and
development, administrative, distribution facilities, and 31 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
Type and Use
Business Segment
Approximate Size
(Square Feet)
Owned Properties
El Paso, Texas, USA
Land & Building - U.S. Headquarters
All Segments
El Paso, Texas, USA
Land & Building - Distribution Facility
Housewares, Health & Home and Beauty
Olive Branch, Mississippi, USA Land & Building - Distribution Facility
Health & Home and Beauty
Southaven, Mississippi, USA
Land & Building - Distribution Facility
Housewares and Beauty
Sheffield, England
Land & Building - Office Space
Housewares, Health & Home and Beauty
Mexico City, Mexico
Land & Building - Office Space
Health & Home and Beauty
135,000
408,000
1,300,000
1,200,000
10,400
3,900
18
Table of Contents
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
Office Space
5
—
5
4
4
18
Distribution
Facility
Total
1
1
6
1
5
14
6
1
11
5
9
32
Approximate square footage of all properties leased or otherwise utilized
232,900
1,311,800
1,544,700
Item 3. Legal Proceedings
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 13 to the accompanying
consolidated financial statements for a further discussion.
Item 4. Mine Safety Disclosures
Not applicable.
19
Table of Contents
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Market Information for Common Stock
Our common stock is listed on the NASDAQ Global Select Market under symbol: HELE.
Approximate Number of Equity Security Holders of Record
Our common stock is our only class of equity security outstanding at February 28, 2019. As of April 22,
2019, there were 144 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.
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. As of February 28, 2019, our repurchase authorization allowed for the
purchase of $110.5 million of common stock. 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. See Note 11 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.
20
Table of Contents
Share repurchase activity during the three months ended February 28, 2019, was as follows:
Period
December 1 through December 31, 2018
January 1 through January 31, 2019
February 1 through February 28, 2019
Total
Total Number of
Shares
Purchased (1)
Average Price
Paid per Share
108
$
615,081
40,113
655,302
$
122.22
114.46
116.26
114.57
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or
Programs
(in thousands) (2)
108
$
615,081
40,113
655,302
185,593
115,192
110,529
(1) The number of shares above includes shares of common stock acquired from employees who tendered shares to: 1)
satisfy the tax withholding on equity awards as part of our long-term incentive plans or 2) satisfy the exercise price on
stock option exercises. For the three months ended February 28, 2019 and for the full year fiscal 2019, 554 and 59,024
shares were acquired from employees at a weighted average per share price of $116.44 and $91.70, respectively.
(2) Reflects the remaining dollar value of shares that may yet be purchased under our Stock Repurchase Plan through the
end of February 28, 2019 as authorized by the Company's Board of Directors in May 2017. For additional information,
see Note 11 to the accompanying consolidated financial statements.
The following table summarizes our share repurchase activity for the periods shown:
(in thousands, except share and per share data)
Common stock repurchased on the open market:
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
Fiscal Years Ended February 28,
2017
2018
2019
1,875,469
$ 212,080
113.08
$
59,024
5,413
91.70
$
$
717,300
65,795
91.73
75,785
7,258
95.77
$
$
$
$
$
$
$
$
922,731
75,000
81.28
6,286
595
94.61
21
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 February 28, 2014. 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.
22
Table of Contents
Item 6. Selected Financial Data
The selected consolidated statements of income and cash flow data for fiscal 2019, 2018 and 2017, and
the selected consolidated balance sheet data as of the end of fiscal 2019 and 2018, 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 2016 and 2015, and the selected consolidated
balance sheet data as of the end of fiscal 2017, 2016 and 2015, 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 Supplement segment is included in Note 4 to the accompanying consolidated
financial statements.
Income (loss) from discontinued operations, net of tax
(5,679)
(84,436)
(3,621)
(in thousands, except per share data)
Income Statement Data:
Housewares
Health & Home
Beauty
Sales revenue, net
Gross profit
Asset impairment charges
Restructuring charges
Operating income
Interest expense
Income tax expense
Income from continuing operations
Net income
Earnings (loss) per share - basic
Continuing operations
Discontinued operations
Net income
Earnings (loss) per share - diluted
Continuing operations
Discontinued operations
Net income
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Cash Flow Data from Continuing Operations:
Depreciation and amortization
Net cash provided by operating activities
(3)
Capital and intangible asset expenditures
Payments to acquire businesses, net of cash acquired
(1)(2)
2019
2018 (1)(2)(3)
2017
(1)(2)(3)
2016
(1)(2)(3)
(1)(2)
2015
$
523,807 $
459,004 $
418,558 $
311,023
695,217
345,127
674,062
345,779
626,982
351,995
637,427
434,943
296,491
607,567
430,912
1,564,151
1,478,845
1,397,535
1,383,393
1,334,970
641,106
611,199
573,416
516,551
516,906
—
3,586
15,447
1,857
2,900
—
6,000
—
9,000
—
199,379
169,062
169,664
116,294
152,215
11,719
13,776
13,951
26,556
14,361
11,407
174,224
128,882
144,310
10,581
13,021
92,991
8,237
14,079
12,332
126,322
4,842
168,545
44,446
140,689
101,228
131,164
$
$
$
$
6.68 $
4.76 $
5.24 $
3.29 $
(0.22)
(3.12)
(0.13)
0.29
6.46 $
1.64 $
5.11 $
3.58 $
6.62 $
4.73 $
5.17 $
3.23 $
(0.22)
(3.10)
(0.13)
0.29
6.41 $
1.63 $
5.04 $
3.52 $
4.42
0.17
4.59
4.35
0.17
4.52
26,073
26,303
27,077
27,254
27,522
27,891
28,273
28,749
28,579
29,035
$
29,927 $
33,730 $
36,175 $
34,889 $
34,213
200,568
26,385
—
218,609
212,491
170,263
171,742
13,605
15,507
—
209,267
16,676
43,150
5,908
195,943
240,600
Net amounts borrowed (repaid)
29,900
(197,000)
(133,200)
190,700
23
Table of Contents
(in thousands)
Balance Sheet Data from Continuing Operations:
Working capital
(4)
(1)(2)
2019
(1)(2)(3)
2018
2017
(1)(2)(3)
2016
(1)(2)(3)
(1)(2)
2015
$
292,828 $
258,222 $
267,896 $
487,861 $
308,895
Goodwill and other intangible assets
893,846
905,235
938,324
762,879
746,542
(4)
Total assets
Long-term debt (4)
Stockholders' equity (5)
1,649,535
1,623,717
1,616,235
1,639,673
1,444,163
318,900
287,985
461,211
600,107
411,307
996,637
1,014,459
1,020,766
930,043
904,565
(1) We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) in the first quarter of fiscal 2019 and
have reclassified amounts in the prior year’s statements of income to conform to the current period’s presentation. For
additional information see Note 3 to the accompanying consolidated financial statements.
(2) In December 2017, we divested our former Nutritional Supplements segment, which is reported as discontinued
operations. For additional information see Note 4 to the accompanying consolidated financial statements.
(3) 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.
(4) Fiscal 2016 and 2015 include certain reclassifications to conform with fiscal 2017 adopted accounting changes.
(5) During fiscal 2019, 2018, 2017, 2016 and 2015, we repurchased and retired 1,934,493, 793,085, 929,017, 1,244,090,
and 4,174,093 shares of common stock having total cost of $217.5, $73.1, $75.6, $106.4, and $278.4 million,
respectively.
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 ("EPS") 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.
24
Table of Contents
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.
This MD&A, including the tables 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,
reports 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, restructuring
charges, the TRU bankruptcy charge, the patent litigation charge, 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 tables
reconcile these measures to their corresponding GAAP-based measures presented in our condensed
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 our financial results calculated in accordance with GAAP, provide
investors with additional perspective regarding the impact of such charges on applicable income, margin
and earnings per share measures. 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 our continuing operations for the
period in which the charges are incurred, even though such charges may be incurred and reflected in 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.
These measures are discussed further and reconciled to their applicable GAAP based measures
contained in this MD&A beginning on page 35.
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 five-year transformational strategy designed to improve the performance of
our business segments and strengthen our shared service capabilities. This strategy has driven our
decisions on where we will operate and how we will achieve our goals in markets around the world. The
25
Table of Contents
overall design of our business and organizational plan is intended to create sustainable and profitable
growth and improve organizational capability.
Fiscal 2019 marked the completion of Phase I of our multi-year transformation strategy, which delivered
performance across a wide range of measures. We improved core sales growth by focusing on our
Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong
global shared services, upgraded our organization and culture, improved inventory turns and return on
invested capital, and returned capital to shareholders.
Fiscal 2020 begins Phase II of our transformation and is designed to drive the next five years of
progress. The long-term objectives of Phase II include improved organic sales growth, continued margin
expansion, and strategic and effective capital deployment. We expect Phase II will include continued
investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation,
expanding them more aggressively outside the United States, and adding new brands through
acquisition. We anticipate building further shared service capability and operating efficiency, as well as
attracting, retaining, unifying and training the best people.
In fiscal 2018, we announced a restructuring plan (referred to as “Project Refuel”) intended to enhance
the performance primarily in the Beauty and former Nutritional Supplements segments. Project Refuel
includes charges for a reduction-in-force and the elimination of certain contracts. During the first quarter
of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply
chain structure. We are targeting total annualized profit improvements of approximately $8.0 million to
$10.0 million over the duration of the plan. We estimate the plan to be completed during fiscal 2020 and
expect to incur total restructuring charges of approximately $7.0 million. Restructuring provisions are
determined based on estimates prepared at the time the restructuring actions are approved by
management and are revised periodically. See Note 12 to the accompanying consolidated financial
statements for additional information.
Significant Trends Impacting the Business
Potential Impact of Tariffs
During fiscal 2019, the Office of the U.S. Trade Representative (‘‘USTR’’) imposed additional tariffs on
products imported from China. We purchase a high concentration of our products from unaffiliated
manufacturers located in China. This concentration exposes us to risks associated with doing business
globally, including changes in tariffs.
The tariff increases that have been implemented by the USTR began to impact our cost of goods sold in
the third quarter of fiscal 2019. In total, the net unmitigated tariff impact that unfavorably impacted cost of
sales during fiscal 2019 was approximately $4.0 million. Our implemented pricing actions became
partially effective during the fourth quarter of fiscal 2019 and will continue into the first quarter of fiscal
2020. This is due to the negotiation and notice periods involved in taking pricing actions with our retail
customers. Although our pricing actions are intended to offset the full gross profit impact of tariff
increases, there are no assurances that the pricing action will not reduce retail consumption or customer
orders in the short-term.
Potential Impact of Brexit
The potential exit of the United Kingdom (the "U.K.") from European Union ("E.U.") membership
(commonly referred to as "Brexit") could cause disruptions to and create uncertainty surrounding our
business, including affecting our relationships with our existing and future customers, suppliers and
employees, which could have an adverse effect on our business, financial results and operations.
Negotiations are ongoing to determine the future terms of the U.K.’s relationship with the E.U., including
the terms of trade between the U.K. and the E.U. The effects of Brexit will depend on any agreements the
U.K. makes to retain access to E.U. markets either during a transitional period or more permanently.
These measures could potentially disrupt the markets we serve and the tax jurisdictions in which we
26
Table of Contents
operate, adversely change tax benefits or liabilities in these or other jurisdictions, and cause us to lose
customers, suppliers, and employees. In addition, Brexit could lead to legal uncertainty and potentially
divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate.
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 2019, changes in foreign currency exchange rates had an unfavorable impact on consolidated
U.S. Dollar reported net sales revenue of approximately $1.2 million, or 0.1%. 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%.
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. Approximately 78% of our consolidated net sales
in fiscal 2019 were from U.S. shipments compared to 79% in fiscal 2018 and 2017.
Additionally, the shift in consumer shopping preferences to online or multichannel shopping experiences
has shifted the concentration of our sales. For fiscal 2019, 2018 and 2017, our net sales to customers
fulfilling end-consumer online orders and online sales directly to consumers comprised approximately
19%, 16% and 12%, respectively, of our total consolidated net sales revenue for each fiscal year and
grew over 28% in fiscal 2019. 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 2018-2019 season,
fall and winter weather was generally milder than historical averages and cough/cold/flu incidence was
significantly lower than the 2017-2018 season, which was an above average season.
Potential Sale Process of our Personal Care Business
On March 11, 2019, we announced that we are in the process of exploring the divestiture of our Personal
Care business, a subset of our Beauty Segment. The Personal Care business includes liquid, powder
and aerosol products under brands such as Pert, Brut, Sure and Infusium. This potential divestiture
advances our strategy to focus our resources on our Leadership Brands.
27
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.
3.1 %
(0.2)%
5.8 %
6.4 %
4.9 %
3.1 %
*
9.7 %
7.5 %
(1.8)%
5.8 %
5.3 %
6.6 %
6.0 %
*
*
(2.9)%
(0.2)%
(in thousands)
Sales revenue by segment, net
Housewares
Health & Home
Beauty
Fiscal Years Ended February 28,
% of Sales Revenue, net
% Change
(1)
2019
(1)(3)
2018
(1)(3)
2017
2019
2018
2017
19/18
18/17
$
523,807
$
459,004
$
418,558
33.5 %
31.0 %
29.9 %
14.1 %
695,217
345,127
674,062
345,779
626,982
44.4 %
45.6 %
44.9 %
351,995
22.1 %
23.4 %
25.2 %
Total sales revenue, net
1,564,151
1,478,845
1,397,535
100.0 % 100.0 % 100.0 %
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
Loss from discontinued operations
(2)
923,045
641,106
438,141
—
3,586
867,646
611,199
424,833
15,447
1,857
824,119
59.0 %
58.7 %
59.0 %
573,416
41.0 %
41.3 %
41.0 %
400,852
28.0 %
28.7 %
28.7 %
2,900
—
— %
0.2 %
1.0 %
0.1 %
0.2 %
— %
93.1 %
199,379
169,062
169,664
12.7 %
11.4 %
12.1 %
17.9 %
(0.4)%
340
327
414
— %
— %
— %
4.0 %
(21.0)%
(11,719)
(13,951)
(14,361)
(0.7)%
(0.9)%
(1.0)%
(16.0)%
188,000
13,776
174,224
155,438
26,556
128,882
155,717
12.0 %
10.5 %
11.1 %
20.9 %
11,407
144,310
0.9 %
1.8 %
0.8 %
(48.1)%
132.8 %
11.1 %
8.7 %
10.3 %
35.2 %
(10.7)%
(5,679)
(84,436)
(3,621)
(0.4)%
(5.7)%
(0.3)%
(93.3)%
*
Net income
$
168,545
$
44,446
$
140,689
10.8 %
3.0 %
10.1 % 279.2 %
(68.4)%
(1) We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) in the first quarter of fiscal 2019 and
have reclassified amounts in the prior years' statements of income to conform to the current period’s presentation. For
additional information see Note 3 to the accompanying consolidated financial statements.
(2) During fiscal 2018, we divested our Nutritional Supplements segment, which is reported as discontinued operations for all
periods presented. For additional information see Note 4 to the accompanying consolidated financial statements.
(3) 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. For additional information see Note 7 to the accompanying
consolidated financial statements.
* Calculation is not meaningful.
28
Table of Contents
Fiscal 2019 Financial Results
• Consolidated net sales revenue increased 5.8%, or $85.3 million, to $1,564.2 million in fiscal
2019 compared to $1,478.8 million in fiscal 2018.
• Consolidated operating income increased 17.9%, or $30.3 million, to $199.4 million in fiscal 2019
compared to $169.1 million in fiscal 2018. Consolidated operating margin increased 1.3
percentage points to 12.7% of consolidated net sales revenue in fiscal 2019 compared to 11.4%
in fiscal 2018. Fiscal 2019 includes pre-tax restructuring charges of $3.6 million related to Project
Refuel. Consolidated operating income for fiscal 2018 included pre-tax non-cash impairment
charges of $15.4 million, a pre-tax charge of $3.6 million related to the bankruptcy of Toys "R" Us
("TRU"), and pre-tax restructuring charges of $1.9 million.
• Consolidated adjusted operating income increased 6.9%, or $15.3 million, to $239.2 million in
fiscal 2019 compared to $223.9 million in fiscal 2018. Consolidated adjusted operating margin
increased 0.2 percentage points to 15.3% of consolidated net sales revenue in fiscal 2019
compared to 15.1% in fiscal 2018.
•
Income from continuing operations increased 35.2%, or $45.3 million, to $174.2 million in fiscal
2019 compared to $128.9 million in fiscal 2018. Diluted earnings per share (“EPS”) from
continuing operations increased 40.0% to $6.62 in fiscal 2019 compared to $4.73 in fiscal 2018.
• Adjusted income from continuing operations increased 7.5% to $212.1 million in fiscal 2019,
compared to $197.2 million in fiscal 2018. Adjusted diluted EPS from continuing operations
increased 11.3% to $8.06 in fiscal 2019 compared to $7.24 in 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. 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. Loss from discontinued operations, net
of tax, decreased to $5.7 million in fiscal 2019, compared to $84.4 million in fiscal 2018. Diluted
loss per share from discontinued operations was $0.22 in fiscal 2019 compared to $3.10 in fiscal
2018. Fiscal 2018 included after tax non-cash asset impairment charges of $83.5 million. For
additional information, see Note 4 to the accompanying consolidated financial statements.
• Net income was $168.5 million in fiscal 2019 compared to $44.4 million in fiscal 2018. Diluted
EPS was $6.41 in fiscal 2019 compared to $1.63 in fiscal 2018.
29
Table of Contents
Fiscal 2018 Financial Results
• Consolidated net sales revenue increased 5.8%, or $81.3 million, to $1,478.8 million in fiscal
2018 compared to $1,397.5 million in fiscal 2017.
• Consolidated operating income decreased 0.4%, or $0.6 million, to $169.1 million in fiscal 2018
compared to $169.7 million in fiscal 2017. Consolidated operating margin decreased 0.7
percentage points to 11.4% of consolidated net sales revenue in fiscal 2018 compared to 12.1%
in fiscal 2017. Fiscal 2018 included pre-tax non-cash impairment charges of $15.4 million, a pre-
tax charge of $3.6 million related to the bankruptcy of TRU, and pre-tax restructuring charges of
$1.9 million. Fiscal 2017 included a non-cash asset impairment charge of $2.9 million and a
patent litigation charge of $1.5 million.
• Consolidated adjusted operating income increased 6.6%, or $14.0 million, to $223.9 million in
fiscal 2018 compared to $209.9 million in fiscal 2017. Consolidated adjusted operating margin
increased 0.1 percentage points to 15.1% of consolidated net sales revenue in fiscal 2018
compared to 15.0% 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 EPS from continuing operations
decreased 8.5% to $4.73 in fiscal 2018 compared to $5.17 in fiscal 2017.
• Adjusted income from continuing operations increased 9.0% to $197.2 in fiscal 2018,
compared to $180.9 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 in fiscal 2018, compared
to $3.6 million in fiscal 2017. Fiscal 2018 includes after tax non-cash asset impairment charges
of $83.5 million. Fiscal 2017 includes after tax non-cash asset impairment charges of $5.9
million. Diluted loss per share from discontinued operations was $3.10 in fiscal 2018 compared to
$0.13 in fiscal 2017.
• Net income was $44.4 million in fiscal 2018 versus $140.7 million in fiscal 2017. Diluted EPS was
$1.63 in fiscal 2018 compared to $5.04 in fiscal 2017.
30
Table of Contents
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 2018 sales revenue, net
(1)
Core business
Impact of foreign currency
Change in sales revenue, net
Fiscal 2019 sales revenue, net
(1)
Total net sales revenue growth
Core business
Impact of foreign currency
Fiscal Year Ended February 28,
Housewares
459,004
$
Health & Home
674,062
$
Beauty
$
345,779
Total
$ 1,478,845
64,886
(83)
64,803
21,061
94
21,155
572
(1,224)
(652)
86,519
(1,213)
85,306
$
523,807
$
695,217
$
345,127
$ 1,564,151
14.1 %
14.1 %
— %
3.1%
3.1%
—%
(0.2)%
0.2 %
(0.4)%
5.8 %
5.9 %
(0.1)%
(in thousands)
Fiscal 2017 sales revenue, net (1)
Housewares
418,558
$
$
Fiscal Year Ended February 28,
Beauty
Health & Home
626,982
351,995
$
Core business
Impact of foreign currency
Acquisitions (2)
Change in sales revenue, net
Fiscal 2018 sales revenue, net (1)
Total net sales revenue growth
Core business
Impact of foreign currency
Acquisitions
34,222
76
6,148
40,446
43,181
3,899
—
47,080
(7,421)
1,205
—
(6,216)
Total
1,397,535
$
69,982
5,180
6,148
81,310
$
459,004
$
674,062
$
345,779
$
1,478,845
9.7%
8.2%
—%
1.5%
7.5%
6.9%
0.6%
—%
(1.8)%
(2.1)%
0.3 %
— %
5.8%
5.0%
0.4%
0.4%
(1) We adopted ASU 2014-09 in the first quarter of fiscal 2019 and have reclassified amounts in the prior years' statements
of income to conform to the current period’s presentation. For additional information see Note 3 to the accompanying
consolidated financial statements.
(2) Includes approximately one-half month of incremental operating results for Hydro Flask, which was acquired on March
18, 2016. For additional information see Note 7 to the accompanying consolidated financial statements.
In the above tables 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 re-measurement had on reported net sales. Net sales revenue from internally
developed brands or product lines is considered core business activity.
Leadership Brand and Other Net Sales
The following tables summarizes our leadership brand and other net sales:
Fiscal Years Ended February 28,
$ Change
% Change
(in thousands)
Leadership Brand sales revenue, net $ 1,243,600
320,551
All other sales revenue, net
$ 1,564,151
Total sales revenue, net
2019
2018
$ 1,142,183
336,662
$ 1,478,845
2017
$ 1,044,208
353,327
$ 1,397,535
19/18
$ 101,417
(16,111)
$ 85,306
18/17
$ 97,975
(16,665)
$ 81,310
19/18
18/17
8.9 %
(4.8)%
5.8 %
9.4 %
(4.7)%
5.8 %
31
Table of Contents
Consolidated Net Sales Revenue
Comparison of Fiscal 2019 to 2018
Consolidated net sales revenue increased $85.3 million, or 5.8%, to $1,564.2 million in fiscal 2019
compared to $1,478.8 million in fiscal 2018. Growth in consolidated net sales was primarily driven by a
core business increase of $86.5 million, or 5.9%, primarily due to overall point of sale growth in the brick
and mortar channel, incremental distribution, growth in online sales, increased international sales, and
new product introductions. This growth was partially offset by a consumption decline in the Personal
Care category, the discontinuation of certain brands and products within our Beauty segment and the
unfavorable impact from foreign currency fluctuations of approximately $1.2 million, or 0.1%.
Net sales from our Leadership Brands were $1,243.6 million in fiscal 2019, compared to $1,142.2 million
in fiscal 2018, representing a growth of 8.9%.
Comparison of Fiscal 2018 to 2017
Consolidated net sales revenue increased $81.3 million, or 5.8%, to $1,478.8 million in fiscal 2018,
compared to $1,397.5 million in fiscal 2017. Growth in consolidated net sales was primarily driven by:
• a core business increase of $70.0 million, or 5.0%, 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 consumption decline in the Personal Care category and the
impact of lower store traffic and soft consumer spending at traditional brick and mortar retail.
Net sales from our Leadership Brands were $1,142.2 million in fiscal 2018, compared to $1,044.2 million
in fiscal 2017, representing growth of 9.4%.
Segment Net Sales Revenue
Housewares
Comparison of Fiscal 2019 to 2018
Net sales revenue in the Housewares segment increased $64.8 million, or 14.1%, to $523.8 million in
fiscal 2019, compared to $459.0 million in fiscal 2018. Growth was primarily driven by a core business
increase of $64.9 million, or 14.1%, due to point of sale growth with existing customers, an increase in
online sales, higher sales in the club channel, and new product introductions. These factors were
partially offset by lower closeout sales.
Comparison of Fiscal 2018 to 2017
Net sales revenue in the Housewares segment increased $40.4 million, or 9.7%, to $459.0 million in
fiscal 2018, compared to $418.6 million in fiscal 2017. Growth was primarily driven by:
• a core business increase of $34.2 million, or 8.2%, 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 fiscal 2017.
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.
32
Table of Contents
Health & Home
Comparison of Fiscal 2019 to 2018
Net sales revenue in the Health & Home segment increased $21.2 million, or 3.1%, to $695.2 million in
fiscal 2019 compared to $674.1 million in fiscal 2018. Growth was driven by a core business increase of
3.1%, primarily due to higher sales of seasonal products and growth in international sales. These factors
were partially offset by an unfavorable comparison to fiscal 2018, which benefited from strong cough/
cold/flu incidence along with unseasonably cold fall and winter weather. Net foreign currency fluctuations
were not meaningful.
Comparison of Fiscal 2018 to 2017
Net sales revenue in the Health & Home segment increased $47.1 million, or 7.5%, to $674.1 million in
fiscal 2018 compared to $627.0 million in fiscal 2017. Growth was primarily driven by a core business
increase of 6.9%, which benefited 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%.
Beauty
Comparison of Fiscal 2019 to 2018
Net sales revenue in the Beauty segment decreased $0.7 million, or 0.2%, to $345.1 million in fiscal 2019
compared to $345.8 million in fiscal 2018. Segment net sales were unfavorably impacted by net foreign
currency fluctuations of approximately $1.2 million, or 0.4%. Core business revenue increased by 0.2%,
reflecting growth in the online channel, new product introductions in the retail appliance category, and an
increase in international sales, which was partially offset by a decline in brick and mortar sales, the
discontinuation of certain brands and products and a decrease in the Personal Care category.
Comparison of Fiscal 2018 to 2017
Net sales revenue in the Beauty segment decreased $6.2 million, or 1.8%, to $345.8 million in fiscal 2018
compared to $352.0 million in fiscal 2017. The decrease 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
Comparison of Fiscal 2019 to 2018
Consolidated gross profit margin decreased 0.3 percentage points to 41.0% in fiscal 2019, compared to
41.3% in fiscal 2018. The decrease in consolidated gross profit margin is primarily due to less favorable
channel and product mix, a higher mix of shipments made on a direct import basis, and the impact of
tariff increases, partially offset by the favorable margin impact from growth in our Leadership Brands.
Comparison of Fiscal 2018 to 2017
Consolidated gross profit margin increased 0.3 percentage points to 41.3% in fiscal 2018, compared to
41.0% in 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 a less favorable channel mix and
higher promotional spending.
33
Table of Contents
Selling General and Administrative Expense
Comparison of Fiscal 2019 to 2018
Consolidated SG&A ratio decreased 0.7 percentage points to 28.0% in fiscal 2019, compared to 28.7% in
fiscal 2018. The decrease in the consolidated SG&A ratio was primarily due to:
•
•
•
•
•
lower amortization expense;
the favorable impact from foreign currency exchange and forward contract settlements
the favorable comparative impact of a $3.6 million charge related to the bankruptcy of TRU in the
same period last year;
the favorable impact of a higher mix of shipments made on a direct import basis; and
the impact that higher overall net sales had on operating leverage.
These factors were partially offset by:
• higher advertising expense;
• higher share-based compensation expense; and
• higher freight expense.
Comparison of Fiscal 2018 to 2017
Consolidated SG&A ratio remained flat at 28.7% in fiscal 2018 and 2017. Fiscal 2018 included 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 offset by the favorable
comparison from a $1.5 million patent litigation charge in fiscal 2017, 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 2019
We did not record any asset impairment charges in fiscal 2019.
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 testing of indefinite-lived trademarks, we recorded non-cash asset impairment charges
of $2.9 million ($2.5 million after tax) in continuing operations. These charges were related to certain
trademarks in our Beauty segment.
Restructuring Charges
Fiscal 2019
We incurred $3.6 million of pre-tax restructuring costs related to employee severance and termination
benefits under Project Refuel. During fiscal 2019, we made total cash restructuring payments of $3.1
million and had a remaining liability of $1.2 million as of February 28, 2019.
Fiscal 2018
We incurred $1.9 million of pre-tax restructuring costs related to employee severance and termination
benefits and contract termination costs under Project Refuel. During fiscal 2018, we made cash
restructuring payments of $1.3 million and had a remaining liability of $0.5 million as of February 28,
2018.
34
Table of Contents
Fiscal 2017
We did not record any restructuring charges in fiscal 2017.
35
Table of Contents
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 impact of certain items on our operating income, the
below tables report the comparative after tax impact of non cash asset impairment charges, restructuring
charges, patent litigation charges, the TRU bankruptcy charge, 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. For additional information regarding management’s decision to present this non-GAAP financial
information, see the introduction to this Item 7., “Management’s Discussion and Analysis of Financial
Condition and Results of Operation.”
Fiscal Year Ended February 28, 2019
(In thousands)
Housewares
Health & Home
Beauty
Total
Operating income, as reported (GAAP)
$ 100,743
19.2% $ 68,448
9.8% $ 30,188
8.7% $
199,379
12.7%
Asset impairment charges
Restructuring charges
TRU bankruptcy charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
926
—
—%
0.2%
—%
101,669
19.4%
1,980
7,974
0.4%
1.5%
—
686
—
69,134
10,925
9,204
—%
0.1%
—%
—
1,974
—
9.9% 32,162
1.6%
1.3%
1,299
4,875
—%
0.6%
—%
9.3%
0.4%
1.4%
—
3,586
—
—%
0.2%
—%
202,965
13.0%
14,204
22,053
0.9%
1.4%
Adjusted operating income (non-GAAP)
$ 111,623
21.3% $ 89,263
12.8% $ 38,336
11.1% $
239,222
15.3%
Fiscal Year Ended February 28, 2018
(In thousands)
Housewares
(1)
Health & Home
Beauty
Total
Operating income, as reported (GAAP)
$ 89,319
19.5% $ 62,099
9.2% $ 17,644
5.1% $
169,062
11.4%
Asset impairment charges
Restructuring charges
TRU bankruptcy charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
220
956
—%
—%
0.2%
90,495
19.7%
2,226
4,701
0.5%
1.0%
—
—
2,640
64,739
11,101
5,721
—% 15,447
—%
0.4%
1,637
—
4.5%
0.5%
—%
15,447
1,857
3,596
1.0%
0.1%
0.2%
9.6% 34,728
10.0%
189,962
12.8%
1.6%
0.8%
5,527
4,632
1.6%
1.3%
18,854
15,054
1.3%
1.0%
Adjusted operating income (non-GAAP)
$ 97,422
21.2% $ 81,561
12.1% $ 44,887
13.0% $
223,870
15.1%
Fiscal Year Ended February 28, 2017
(In thousands)
Housewares
(1)
Health & Home
Beauty
Total
Operating income, as reported (GAAP)
$ 89,020
21.3% $ 51,072
8.1% $ 29,572
8.4% $
169,664
12.1%
Asset impairment charges
Patent litigation charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
—
—%
—%
89,020
21.3%
2,643
3,409
0.6%
0.8%
—
1,468
52,540
13,663
5,449
—%
0.2%
8.3%
2.2%
0.9%
2,900
0.8%
—
—
32,472
5,718
5,003
9.2%
1.6%
1.4%
2,900
1,468
0.2%
0.1%
174,032
12.4%
22,024
13,861
1.6%
1.0%
Adjusted operating income (non-GAAP)
$ 95,072
22.7% $ 71,652
11.4% $ 43,193
12.3% $
209,917
15.0%
(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.
36
Table of Contents
Consolidated Operating Income
Comparison of Fiscal 2019 to 2018
Consolidated operating income was $199.4 million, or 12.7% of net sales, in fiscal 2019, compared to
consolidated operating income of $169.1 million, or 11.4% of net sales, in fiscal 2018. Fiscal 2019
includes pre-tax restructuring charges of $3.6 million associated with Project Refuel. Fiscal 2018
included pre-tax non-cash asset impairment charges of $15.4 million, a $3.6 million charge related to the
TRU bankruptcy and pre-tax restructuring charges of $1.9 million. The effect of these items in both years
favorably impacted the year-over-year comparison of operating margin by a combined 1.1 percentage
points. The remaining improvement in fiscal 2019 consolidated operating margin was driven by:
• a higher mix of Leadership Brand sales at a higher operating margin;
•
•
lower amortization expense; and
the favorable impact of increased operating leverage from net sales growth.
These factors were partially offset by:
• a less favorable channel and product mix;
• higher advertising expense;
•
• higher share-based compensation expense.
the impact of tariff increases; and
Consolidated adjusted operating income increased 6.9%, or $15.4 million, to $239.2 million in fiscal 2019
compared to $223.9 million in fiscal 2018. Consolidated adjusted operating margin increased 0.2
percentage points to 15.3% of consolidated net sales revenue in fiscal 2019, compared to 15.1% in fiscal
2018.
Comparison of Fiscal 2018 to 2017
Consolidated operating income was $169.1 million in fiscal 2018 compared to $169.7 million in fiscal
2017. Consolidated operating margin was 11.4% in fiscal 2018 compared to 12.1% in fiscal 2017. Fiscal
2018 included 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 included 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 1.0 percentage point. The remaining
improvement in fiscal 2018 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 in fiscal 2018 compared to
$209.9 million in fiscal 2017. Consolidated adjusted operating margin increased 0.1 percentage point to
15.1% in fiscal 2018 compared to 15.0% in fiscal 2017.
37
Table of Contents
Housewares
Comparison of Fiscal 2019 to 2018
Housewares fiscal 2019 operating income was $100.7 million, or 19.2% of segment net sales, compared
to $89.3 million, or 19.5% of segment net sales, in fiscal 2018. The 0.3 percentage point decrease in
segment operating margin is primarily due to:
• higher advertising expense;
• higher share-based compensation expense;
• higher annual incentive compensation expense related to current year performance;
• higher freight expense; and
• higher rent expense related to new office space.
These factors were partially offset by:
•
•
•
the favorable margin impact from growth in the Hydro Flask business;
the favorable impact of increased operating leverage from net sales growth; and
the favorable comparative impact of a $1.0 million charge related to the bankruptcy of TRU in the
same period last year.
Segment adjusted operating income increased 14.6% to $111.6 million, or 21.3% of segment net sales,
in fiscal 2019, compared to $97.4 million, or 21.2% of segment net sales, in fiscal 2018.
Comparison of Fiscal 2018 to 2017
Housewares fiscal 2018 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, in fiscal 2017. The 1.8 percentage point decrease in
segment operating margin was 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 $2.3 million to $97.4 million, or 21.2% of segment net
sales, in fiscal 2018 compared to $95.1 million, or 22.7% of segment net sales, in fiscal 2017.
Health & Home
Comparison of Fiscal 2019 to 2018
Health & Home fiscal 2019 operating income was $68.4 million, or 9.8% of segment net sales, compared
to $62.1 million, or 9.2% of segment net sales, in fiscal 2018. The 0.6 percentage point increase in
segment operating margin is primarily due to:
•
•
•
•
the favorable comparative impact of a $2.6 million charge related to the bankruptcy of TRU in the
same period last year;
strong sales growth in the Asia Pacific region at a higher operating margin;
the favorable impact that higher overall net sales had on operating leverage; and
the favorable impact of foreign currency exchange and forward contract settlements.
These factors were partially offset by:
the margin impact of a less favorable product mix;
the impact of tariff increases;
•
•
• higher share-based compensation expense; and
38
Table of Contents
• higher advertising expense.
Segment adjusted operating income increased 9.4% to $89.3 million, or 12.8% of segment net sales, in
fiscal 2019 compared to $81.6 million, or 12.1% of segment net sales, in fiscal 2018.
Comparison of Fiscal 2018 to 2017
Health & Home fiscal 2018 operating income was $62.1 million, 9.2% of segment net sales, compared to
$51.1 million, or 8.1% of segment net sales, in fiscal 2017. The 1.1 percentage point increase in
segment operating margin was primarily due to:
•
•
•
•
lower legal fee expense and 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 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 12.1% of segment net sales, in
fiscal 2018 compared to $71.7 million, or 11.4% of segment net sales, in fiscal 2017.
Beauty
Comparison of Fiscal 2019 to 2018
Beauty fiscal 2019 operating income was $30.2 million, or 8.7% of segment net sales, compared to $17.6
million, or 5.1% of segment net sales, in fiscal 2018. Fiscal 2019 includes pre-tax restructuring charges of
$2.0 million, compared to $1.6 million in fiscal 2018. Fiscal 2018 also included a $15.4 million pre-tax
non-cash asset impairment charge that did not reoccur in fiscal 2019. The effect of these items favorably
impacted the year-over-year comparison of operating margin by 4.4 percentage points. The remaining
decrease in segment operating margin is primarily due to:
•
the net sales decline in the Personal Care category and its unfavorable impact on operating
margin;
• higher freight expense; and
• higher share-based compensation expense.
These factors were partially offset by:
•
•
cost savings from Project Refuel; and
lower amortization expense.
Segment adjusted operating income decreased 14.6% to $38.3 million, or 11.1% of segment net sales, in
fiscal 2019 compared to $44.9 million, or 13.0% of segment net sales, in fiscal 2018.
Comparison of Fiscal 2018 to 2017
Beauty fiscal 2018 operating income decreased $11.9 million, or 40.3%, to $17.6 million compared to
$29.6 million in fiscal 2017. The decrease in segment operating margin was primarily due to:
• pre-tax non-cash asset impairment charges of $15.4 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 operating
margin.
39
Table of Contents
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 13.0% of segment net sales, in
fiscal 2018 compared to $43.2 million, or 12.3% of segment net sales, in fiscal 2017.
Interest Expense
Interest expense was $11.7 million in fiscal 2019, compared to $14.0 million in fiscal 2018. The decrease
in interest expense is due to lower average levels of debt held during fiscal 2019, partially offset by
higher average interest rates.
Interest expense was $14.0 million in fiscal 2018, compared to $14.4 million in fiscal 2017. The decrease
in interest expense was due to lower average levels of debt held during fiscal 2018, partially offset by
higher 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 statutory income tax rate from 35% to 21% and
established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed
earnings of foreign subsidiaries.
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 2019 income tax expense as a percentage of income before tax was 7.3% compared to 17.1% in
the same period last year. The decrease in our effective tax rate was primarily due to the provisional
charge of $17.9 million recorded in fiscal 2018 related to the Tax Act.
Fiscal 2018 income tax expense as a percentage of income before tax was 17.1% compared to 7.3% in
fiscal 2017. The increase in the 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 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.
40
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 below tables report the comparative after tax impact of non cash asset
impairment charges, restructuring charges, tax reform, 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. For additional information regarding management’s decision to present this non-GAAP
financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of
Financial Condition and Results of Operation.”
Fiscal Year Ended February 28, 2019
Income From Continuing Operations
Diluted Earnings Per Share
(in thousands, except per share data)
Before Tax
Tax
Net of Tax Before Tax
Tax
Net of Tax
As reported (GAAP)
Restructuring charges
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
$
188,000
$
13,776
$ 174,224
$
3,586
191,586
14,204
22,053
215
3,371
13,991
177,595
372
1,395
13,832
20,658
Adjusted (non-GAAP)
$
227,843
$
15,758
$ 212,085
$
Weighted average shares of common stock used in computing diluted earnings per share
7.15
0.14
7.28
0.54
0.84
8.66
$
$
0.52
0.01
0.53
0.01
0.05
0.60
$
$
6.62
0.13
6.75
0.53
0.79
8.06
26,303
(in thousands, except per share data)
Before Tax
Tax
Net of Tax Before Tax
Tax
Net of Tax
Fiscal Year Ended February 28, 2018
Income From Continuing Operations
Diluted Earnings Per Share
$
155,438
$
26,556
$ 128,882
$
5.70
$
0.97
$
As reported (GAAP)
Tax reform
Asset impairment charges
Restructuring charges
TRU bankruptcy charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
(17,939)
15,447
1,857
3,596
1,613
69
204
17,939
13,834
1,788
3,392
176,338
10,503
165,835
18,854
15,054
850
1,669
18,004
13,385
Adjusted (non-GAAP)
$
210,246
$
13,022
$ 197,224
$
—
0.57
0.07
0.13
6.47
0.69
0.55
7.71
$
(0.66)
0.06
—
0.01
0.39
0.03
0.06
0.48
$
4.73
0.66
0.51
0.07
0.12
6.08
0.66
0.49
7.24
Weighted average shares of common stock used in computing diluted earnings per share
27,254
Fiscal Year Ended February 28, 2017
Income From Continuing Operations
Diluted Earnings Per Share
(in thousands, except per share data)
Before Tax
Tax
Net of Tax Before Tax
Tax
Net of Tax
As reported (GAAP)
Asset impairment charges
Patent litigation charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
$
155,717
$
11,407
$ 144,310
$
2,900
1,468
354
4
2,546
1,464
160,085
11,765
148,320
22,024
13,861
1,538
1,762
20,486
12,099
Adjusted (non-GAAP)
$
195,970
$
15,065
$ 180,905
$
5.58
0.10
0.05
5.74
0.79
0.50
7.03
$
$
0.41
0.01
—
0.42
0.06
0.06
0.54
$
$
5.17
0.09
0.05
5.32
0.73
0.44
6.49
Weighted average shares of common stock used in computing diluted earnings per share
27,891
41
Table of Contents
Comparison of Fiscal 2019 to 2018
Our income from continuing operations was $174.2 million in fiscal 2019 compared to $128.9 million in
fiscal 2018, an increase of 35.2%. Our diluted EPS from continuing operations increased $1.89, or
40.0%, to $6.62 in fiscal 2019 compared to $4.73 in fiscal 2018.
Adjusted income from continuing operations increased $14.9 million, or 7.5%, to $212.1 million in fiscal
2019 compared to $197.2 million in fiscal 2018. Adjusted diluted EPS from continuing operations
increased 11.3% to $8.06 in fiscal 2019 compared to $7.24 in fiscal 2018. The increase in adjusted
income from continuing operations 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 2019.
Comparison of Fiscal 2018 to 2017
Our income from continuing operations was $128.9 million in fiscal 2018 compared to $144.3 million in
fiscal 2017, a decrease of 10.7%. Our diluted EPS from continuing operations decreased $0.44, or
8.5%, to $4.73 in fiscal 2018 compared to $5.17 in fiscal 2017.
Adjusted income from continuing operations increased $16.3 million, or 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. The increase in adjusted
income from continuing operations 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.
Financial Condition, Liquidity and Capital Resources
Selected measures of our liquidity and capital utilization for fiscal 2019 and 2018 are shown below:
Accounts Receivable Turnover (Days)(1)
Inventory Turnover (Times)(1)
Fiscal Years Ended February 28,
2019
2018
68.3
3.3
62.7
3.0
Working Capital (in thousands)
$
292,828
$
258,222
Current Ratio
Ending Debt to Ending Equity Ratio
Return on Average Equity(1)
1.9:1
32.2%
16.9%
1.9:1
28.6%
12.7%
(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 2019 to 2018
Operating activities from continuing operations provided net cash of $200.6 million during fiscal 2019
compared to $218.6 million during fiscal 2018. The decrease was primarily driven by an increase in cash
used for inventory and a dispute settlement payment of $15.0 million. These factors were partially offset
by an increase in income from continuing operations and higher non-cash share-based compensation.
42
Table of Contents
Comparison of Fiscal 2018 to 2017
Operating activities from continuing operations provided $218.6 million of cash during fiscal 2018
compared to $212.5 million of cash provided 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.
Investing Activities:
Investing activities from continuing operations used cash of $25.2 million, $13.6 million, and $224.7
million in fiscal 2019, 2018 and 2017, respectively.
Highlights from Fiscal 2019
• we invested in capital expenditures of $26.4 million primarily for leasehold improvements;
computers, furniture and other equipment; and tools, molds and other production equipment.
Highlights from Fiscal 2018
• we invested in capital expenditures of $13.6 million primarily for leasehold improvements;
computers, furniture and other equipment; tools, molds, other production equipment; and the
development of new patents.
Highlights from Fiscal 2017
• we invested in capital expenditures of $15.5 million primarily for leasehold improvements;
computers, furniture and other equipment; tools, molds, other production equipment; the
development of new patents; and
• we invested $209.3 million to acquire Hydro Flask.
Financing Activities:
Financing activities used cash of $178.9 million, $262.2 million and $201.4 million in fiscal 2019, 2018
2017, respectively.
Highlights from Fiscal 2019
•
•
•
•
we had draws of $667.3 million under our Credit Agreement;
we repaid $635.5 million drawn under our Credit Agreement;
we repaid $1.9 million of long-term debt; and
we repurchased and retired 1,934,493 shares of common stock at an average price of $112.43
per share for a total purchase price of $217.5 million through a combination of open market
purchases and the settlement of certain stock awards.
Highlights from Fiscal 2018
•
•
•
•
we had draws of $521.2 million under our Credit Agreement;
we repaid $692.5 million drawn under 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 open market purchases
and the settlement of certain stock awards.
Highlights from Fiscal 2017
•
•
we had draws of $470.9 million under our Credit Agreement;
we repaid $580.3 million drawn under our Credit Agreement;
43
Table of Contents
•
•
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 open market purchases
and the settlement of certain stock awards.
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 $1.0 billion as of
February 28, 2019. The commitment under the Credit Agreement terminates on December 7,
2021. Borrowings accrue interest under one of two alternative methods (based upon a base rate or
LIBOR) 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, 2019, the
outstanding revolving loan principal balance was $301.2 million and the balance of outstanding letters of
credit was $9.0 million. As of February 28, 2019, the amount available for borrowings under the Credit
Agreement was $689.8 million. Covenants in our debt agreements limit the amount of total indebtedness
we can incur. As of February 28, 2019, these covenants effectively limited our ability to incur more than
$548.4 million of additional debt from all sources, including our Credit Agreement, or $689.8 million in the
event a qualified acquisition is consummated.
Other Debt Agreements
We have an aggregate principal balance of approximately $22.4 million under a loan agreement with the
Mississippi Business Finance Corporation (the “MBFC Loan”). The borrowings were used to fund
construction of our Olive Branch, Mississippi distribution facility. The remaining principal balance is
payable as follows: $1.9 million annually on March 1, 2019 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.
44
Table of Contents
The table below provides the formulas currently in effect for certain key financial covenants under our
debt agreements:
Applicable Financial Covenant
Credit Agreement and MBFC Loan
Interest Coverage Ratio
Maximum Leverage Ratio
EBIT (1) ÷ Interest Expense (1)
Minimum Required: 3.00 to 1.00
Total Current and Long Term Debt (2) ÷
EBITDA (1) + Pro Forma Effect of Acquisitions
Maximum Currently Allowed: 3.50 to 1.00 (3)
Key Definitions:
EBIT:
EBITDA:
Pro Forma Effect of Acquisitions: For any acquisition, pre-acquisition EBITDA of the acquired business is included so
Earnings Before Non-Cash Charges, Interest Expense and Taxes
EBIT + Depreciation and Amortization Expense + Share-based Compensation
that the EBITDA of the acquired business included in the computation equals its twelve
month trailing total.
Notes:
(1) Computed using totals for the latest reported four consecutive fiscal quarters.
(2) Computed using the ending balances as of the latest reported fiscal quarter.
(3) In the event a qualified acquisition is consumated, the maximum leverage ratio is 4.25 to 1.00.
Contractual Obligations
Our contractual obligations and commercial commitments in effect as of the end of fiscal 2019 were:
(in thousands)
Floating rate debt
Long-term incentive plan payouts
Interest on floating rate debt (1)
Open purchase orders
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
Total contractual obligations (2)
Fiscal Years Ended the Last Day of February:
2020
2021
2022
2023
2024
After
Total
1 year
2 years
3 years
4 years
5 years
5 years
$ 323,607 $
1,900 $
1,900 $ 303,100 $
1,900 $ 14,807 $
12,708
32,237
7,012
3,481
11,453
11,387
234,659
234,659
—
2,215
8,879
—
49,159
37,401
69,482
4,602
12,650
18,933
5,171
4,602
12,855
13,040
6,411
6,678
—
6,527
6,411
—
—
518
—
7,914
5,530
5,743
—
—
—
—
2,700
—
5,078
40,401
—
—
$ 763,855 $ 296,380 $ 42,712 $ 340,172 $ 21,605 $ 22,585 $ 40,401
—
—
—
—
—
—
(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, 2019 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, 2019 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, 2019, we
have recorded a provision for uncertain tax positions of $3.2 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.
45
Table of Contents
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 under our Board 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. We may finance share repurchases
with available cash, additional debt or other sources of financing. 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, 2019, the amount of cash and cash equivalents held
by our foreign subsidiaries was $15.2 million, of which, an immaterial amount was held in foreign
countries where the funds may not be readily convertible into other currencies.
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
46
Table of Contents
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.
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,
47
Table of Contents
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.
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, restricted stock
units 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, refer to 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.
48
Table of Contents
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.
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 2019, 2018 and 2017, approximately 13% of our net sales revenue was in foreign currency.
These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, and Canadian
Dollars. 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 and
zero-cost collars 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 foreign
currencies. 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 to 24 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. As of February 28, 2019 and 2018, a hypothetical adverse
10% change in foreign currency rates would reduce the carrying and fair values of the hedging
instruments and derivatives by $8.2 million and $11.2 million on a pre-tax basis, respectively. This
calculation 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 over the same periods as the contracts. Refer to Note 16 in the accompanying
consolidated financial statements for further information regarding these instruments.
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 2019 the Chinese
Renminbi strengthened against the U.S. Dollar by approximately 6.0%. 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
49
Table of Contents
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, 2019 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. We
hedge against interest rate volatility by using interest rate swaps to hedge a portion of our outstanding
floating rate debt. Additionally, our cash and short-term investments generate interest income that will
vary based on changes in short-term interest. As of February 28, 2019 and 2018, a hypothetical adverse
10% change in interest rates would reduce the carrying and fair values of the interest rate swaps by $2.1
million and $0.9 million on a pre-tax basis, respectively. This calculation 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 swaps. Actual
results in the future may differ materially from these estimated results due to actual developments in the
global financial markets. Because the swaps hedge an underlying exposure, we would expect a similar
and opposite change in floating interest rates over the same periods as the swaps. Refer to Notes 14
and 16 in the accompanying consolidated financial statements for further information regarding our
interest rate sensitive assets and liabilities.
50
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, 2019 and February 28, 2018
Consolidated Statements of Income for each of the years in the three-year period ended February 28, 2019
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended
February 28, 2019
Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended
February 28, 2019
Consolidated Statements of Cash Flows for each of the years in the three-year period ended February 28,
2019
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, 2019
All other schedules are omitted as the required information is included in the consolidated financial
statements or is not applicable.
52
53
55
56
57
58
59
60
95
51
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, 2019.
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.
52
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, 2019, 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, 2019, 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, 2019, and our report dated April 29, 2019 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 29, 2019
53
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, 2019 and 2018, the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for each of the three years in the period ended February 28, 2019, 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, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended February
28, 2019, 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, 2019, 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, 2019 expressed an
unqualified opinion.
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 29, 2019
54
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 $2,032 and $2,912
Inventory
Prepaid expenses and other current assets
Income taxes receivable
Total assets, current
Property and equipment, net of accumulated depreciation of $123,744 and $115,202
Goodwill
Other intangible assets, net of accumulated amortization of $181,463 and $167,354
Deferred tax assets, net
Other assets, net of accumulated amortization of $2,115 and $2,022
February 28,
2019
February 28,
2018
$
11,871
$
20,738
280,280
302,339
10,369
—
604,859
130,338
602,320
291,526
7,991
12,501
275,565
251,511
9,545
349
557,708
123,503
602,320
302,915
16,654
20,617
Total assets
$ 1,649,535
$ 1,623,717
Liabilities and Stockholders' Equity
Liabilities, current:
Accounts payable, principally trade
Accrued expenses and other current liabilities
Income taxes payable
Long-term debt, current maturities
Total liabilities, current
Long-term debt, excluding current maturities
Deferred tax liabilities, net
Other liabilities, noncurrent
Total liabilities
Commitments and contingencies
Stockholders' equity:
$
143,560
$
129,341
165,160
168,261
1,427
1,884
312,031
318,900
5,748
16,219
652,898
—
1,884
299,486
287,985
7,096
14,691
609,258
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; 24,946,046 and 26,575,634 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.
2,495
246,585
1,191
746,366
996,637
2,658
230,676
631
780,494
1,014,459
$ 1,649,535
$ 1,623,717
55
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
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
Fiscal Years Ended February 28,
2019
2018
2017
$ 1,564,151
$ 1,478,845
$ 1,397,535
923,045
641,106
438,141
—
3,586
867,646
611,199
424,833
15,447
1,857
824,119
573,416
400,852
2,900
—
199,379
169,062
169,664
340
327
414
(11,719)
(13,951)
(14,361)
188,000
13,776
174,224
155,438
26,556
128,882
155,717
11,407
144,310
(5,679)
(84,436)
(3,621)
$
168,545
$
44,446
$
140,689
$
$
$
$
6.68
$
4.76
$
(0.22)
(3.12)
6.46
$
1.64
$
6.62
$
4.73
$
(0.22)
(3.10)
6.41
$
1.63
$
5.24
(0.13)
5.11
5.17
(0.13)
5.04
Weighted average shares of common stock used in computing earnings per
share:
Basic
Diluted
26,073
26,303
27,077
27,254
27,522
27,891
See accompanying notes to consolidated financial statements.
56
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income (loss), net of tax:
Cash flow hedge activity - interest rate swaps
Cash flow hedge activity - foreign currency contracts
Total other comprehensive income (loss), net of tax
Comprehensive income
Fiscal Years Ended February 28,
2019
2018
2017
$
168,545
$
44,446
$
140,689
(1,573)
2,133
560
1,705
(2,247)
(542)
—
508
508
$
169,105
$
43,904
$
141,197
57
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(in thousands, including shares)
Balances at February 29, 2016
Income from continuing operations
Loss from discontinued operations
Other comprehensive income (loss), net of tax
Exercise of stock options
Net issuance and settlement of restricted stock
Issuance of common stock related to stock purchase plan
Common stock repurchased and retired
Share-based compensation
Cumulative effect of accounting change
Balances at February 28, 2017
Income from continuing operations
Loss from discontinued operations
Other comprehensive income (loss), net of tax
Exercise of stock options
Net issuance and settlement of restricted stock
Issuance of common stock related to stock purchase plan
Common stock repurchased and retired
Share-based compensation
Balances at February 28, 2018
Income from continuing operations
Loss from discontinued operations
Other comprehensive income (loss), net of tax
Exercise of stock options
Net issuance and settlement of restricted stock
Issuance of common stock related to stock purchase plan
Share-based compensation
Cumulative effect of accounting change
Balances at February 28, 2019
Common Stock
Shares
Par
Value
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Shareholders'
Equity
27,735 $
2,774
$ 198,077
$
665
$ 728,527
$
—
—
—
170
21
32
—
—
—
17
2
3
(929)
(93)
—
—
—
—
—
—
—
7,288
1,733
2,485
(5,272)
13,861
588
—
—
508
—
—
—
—
—
—
144,310
(3,621)
—
—
—
—
(70,230)
—
(856)
930,043
144,310
(3,621)
508
7,305
1,735
2,488
(75,595)
13,861
(268)
27,029
2,703
218,760
1,173
798,130
1,020,766
—
—
—
126
198
16
(793)
—
—
—
—
12
20
2
(79)
—
—
—
—
6,547
(318)
1,525
(10,892)
15,054
—
—
(542)
—
—
—
—
—
128,882
(84,436)
—
—
—
—
(62,082)
—
128,882
(84,436)
(542)
6,559
(298)
1,527
(73,053)
15,054
26,576
2,658
230,676
631
780,494
1,014,459
—
—
—
126
147
31
—
—
—
13
15
3
—
—
—
6,262
(15)
2,392
—
—
—
—
22,053
—
—
—
560
—
—
—
—
—
—
174,224
(5,679)
—
—
—
—
174,224
(5,679)
560
6,275
—
2,395
(202,516)
(217,493)
—
(157)
22,053
(157)
24,946 $
2,495
$ 246,585
$
1,191
$ 746,366
$
996,637
Common stock repurchased and retired
(1,934)
(194)
(14,783)
See accompanying notes to consolidated financial statements.
58
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash provided by operating activities:
Net income
Less: 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
(Gain) loss on the sale or disposal of property and equipment
Deferred income taxes and tax credits
Changes in operating assets and liabilities, net of effects of acquisition of business:
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 (used) 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 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
Repurchases of common stock in the open market and from share settlements
Net cash used by financing activities - continuing operations
Net cash provided by financing activities - discontinued operations
Net cash 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
See accompanying notes to consolidated financial statements.
59
Fiscal Years Ended February 28,
2019
2018
2017
$
168,545
$
44,446
$
(5,679)
174,224
(84,436)
128,882
29,927
1,015
1,097
22,053
—
(540)
7,636
(5,812)
(50,828)
239
7,549
14,219
(1,526)
1,315
200,568
(5,265)
195,303
(26,385)
1,138
—
33,730
887
1,066
15,054
15,447
331
21,264
(44,921)
29,366
(383)
(16,728)
23,689
12,293
(1,368)
218,609
5,598
224,207
(13,605)
13
—
(25,247)
(13,592)
—
(25,247)
49,226
35,634
667,250
(635,450)
(1,900)
—
8,670
(217,493)
(178,923)
—
(178,923)
(8,867)
20,738
11,871
—
521,200
(692,500)
(25,700)
—
7,863
(73,053)
(262,190)
—
(262,190)
(2,349)
23,087
20,738
—
140,689
(3,621)
144,310
36,175
706
2,277
13,861
2,900
197
(7,499)
(4,721)
17,161
(1,908)
(814)
6,299
7,023
(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
(75,595)
(201,360)
—
(201,360)
(202,713)
225,800
23,087
(761)
$
$
$
11,871
$
20,738
$
23,848
11,292
4,277
$
$
13,543
6,081
$
$
9,978
15,950
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, 2019, 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 additional information see Note 4. 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 30th. We purchase our products from unaffiliated manufacturers, most of which are located in
China, Mexico and the United States.
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 to conform to the current year’s presentation, including
discontinued operations (see Note 4) and the adoption of ASU 2014-09, Revenue from Contracts with
Customers (Topic 606) (see Note 3).
60
Table of Contents
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 an allowance for doubtful receivables. 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.
We have a significant concentration of credit risk with three major customers at February 28, 2019
representing approximately 17%, 12% and 12% of gross trade receivables, respectively. In addition, as
of February 28, 2019 and 2018, approximately 48% of our gross trade receivables in both years 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 and cross-
currency swaps to exchange foreign currencies for U.S. Dollars at specified rates. Derivatives for which
we have elected and qualify for hedge accounting, are recorded on the balance sheet at their fair value
and changes in the fair value of the forward exchange contracts and zero cost collars are recorded each
period in our consolidated statements of comprehensive income until the underlying hedge transaction is
settled, at which point changes in fair value are recorded in our consolidated statements of income. For
derivatives which we have not elected, or do not qualify for, hedge accounting, changes in the fair value
of the contracts are recorded each period in our consolidated statements of income. 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. Inventories are stated at the lower of average
costs or net realizable value. We write down a portion of our inventory to net realizable value based on
the historical success of product lines and estimates about future demand and market conditions, among
other factors. 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.
61
Table of Contents
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 $47.7, $43.2 and $41.7 million of such general and administrative expenses to inventory
during fiscal 2019, 2018 and 2017, respectively. We estimate that $15.6 and $11.8 million of general and
administrative expenses directly attributable to the procurement of inventory were included in our
inventory balances on hand at February 28, 2019 and 2018, 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 2019, 2018 and 2017, finished goods purchased from vendors in the Far East comprised
approximately 74%, 74% and 71%, respectively, of total finished goods purchased. During fiscal 2019,
2018, and 2017, we had one vendor (located in Mexico) who fulfilled approximately 11% of our product
requirements. For fiscal 2019, 2018 and 2017, our top two manufacturers combined fulfilled
approximately 20%, 19% and 18% of our product requirements. Over the same periods, our top five
suppliers fulfilled approximately 38%, 34% and 31% of our product requirements, respectively.
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 41%, 45% and 44% of consolidated net
sales revenue for fiscal 2019, 2018 and 2017, respectively. During fiscal 2019, two license agreements
accounted for net sales revenue subject to royalty payments of approximately 16% and 12% 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 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.
62
Table of Contents
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.
We perform our annual impairment testing for goodwill and indefinite-lived assets as of the beginning of
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 5 to 30 years.
Sales Returns
We allow for sales returns for defects in material and workmanship for periods ranging from two to five
years. We recognize an allowance for sales returns to reduce sales to reflect our best estimate of future
customer returns, determined principally based on historical experience and specific allowances for
known pending returns.
Financial instruments
The carrying amounts of cash and cash equivalents, receivables, accounts payable, accrued expenses,
and income taxes payable approximate fair value because of the short maturity of these items. See Note
15 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
63
Table of Contents
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
We adopted the provisions of ASU 2014-9 in the first quarter of fiscal 2019, and we elected to adopt the
standard using the retrospective method. 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. We recognize revenue when control of, and title to, the product sold transfers to the customer.
We measure revenue as the amount of consideration for which we expect to be entitled, in exchange for
transferring goods.
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 which are accounted for as
variable consideration. In some cases, we apply judgment, such as contractual rates and historical
payment trends, when estimating variable consideration. These programs are generally recorded as
reductions of net sales revenue. In instances when we purchase a distinct good or service from our
customer and fair value can be reasonably estimated, these amounts are expensed in our consolidated
statements of income in SG&A. The amount of consideration granted to customers recorded in SG&A
were $17.0, $11.8 and $12.1 million for fiscal 2019, 2018 and 2017, respectively. See Note 3 for further
information related to reclassified amounts in SG&A.
Sales taxes and other similar taxes are excluded from revenue. We account for shipping and handling
activities as a fulfillment costs. We do not have unsatisfied performance obligations since our
performance obligations are satisfied at a single point in time.
Advertising
Advertising costs include cooperative retail advertising with our customers, 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 of $62.4, $53.7 and $51.5 million during fiscal 2019, 2018 and 2017, respectively.
64
Table of Contents
Research and development expense
Research and development expenses consist primarily of salary and employee benefit expenses and
contracted development efforts and expenses associated with development of products. Expenditures
for research activities relating to product design, development and improvement are generally charged to
expense as incurred and are included in our consolidated statements. We incurred total research and
development expenses of $13.0, $13.5 and $11.8 million during fiscal 2019, 2018 and 2017, 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 $89.4, $78.1 and $79.4 million during
fiscal 2019, 2018 and 2017, 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 value of
options. This model requires various judgmental assumptions including volatility, forfeiture rates and
expected option life.
See Note 9 for further information on our share-based compensation plans.
65
Table of Contents
Note 2 – New Accounting Pronouncements
Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new guidance requires the
recognition of lease liabilities, representing lease payments, on a discounted basis, and
corresponding right-of-use assets on the balance sheet for leases with a term of longer than 12 months.
The new guidance also includes requirements for enhanced disclosures to give financial statement users
the ability to assess the amount and timing of cash flows arising from leasing arrangements. In July
2018, the FASB issued ASU 2018-11 which permits application of the new guidance at the beginning of
the year of adoption. The new lease guidance is effective for us on March 1, 2019, and we expect to
adopt the new guidance at that date and will not recast comparative periods. We plan to elect the
package of practical expedients available under the transition provisions, including (i) not reassessing
whether expired or existing contracts contain leases, (ii) not reassessing lease classification, and (iii) not
revaluing initial direct costs for existing leases. We do not expect the adoption of the new guidance to
have a material impact on our consolidated statements of income or cash flows. However, we expect
that the adoption will have a material impact on our consolidated balance sheet.
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 believe that the adoption of this guidance
will not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements
for capitalizing implementation costs incurred to develop or obtain internal-use software. The ASU is
effective for us on March 1, 2020, and interim periods within those fiscal years. Early adoption is
permitted. We are currently evaluating the impact this guidance may have on our consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13
removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is
effective for us on March 1, 2020, and interim periods within those fiscal years. Early adoption is
permitted. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and
others on a prospective basis. We are currently evaluating the impact this guidance may have on our
consolidated financial statements.
There have been no other accounting pronouncements issued but not yet adopted that are expected to
have a material impact on our consolidated financial statements.
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. Adoption of this guidance in the first quarter of
fiscal 2019 did not have a material impact 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.
66
Table of Contents
Adoption of this guidance in the first quarter of fiscal 2019 did not have a material impact on our
consolidated financial statements.
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 did not have a material impact
on our 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 was effective for us on March 1, 2018. A modified retrospective approach is
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. Adoption of this guidance in the first quarter of
fiscal 2019 did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU
2014-09 provides a framework for revenue recognition that replaces most existing GAAP revenue
recognition guidance. We adopted the guidance in the first quarter of fiscal 2019. For additional
information see Note 3 regarding the impact of adoption of this guidance on our consolidated financial
statements.
Note 3 – Revenue Recognition
We adopted the provisions of ASU 2014-9 in the first quarter of fiscal 2019, and we elected to adopt the
standard using the retrospective method. 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.
Our revenue is primarily generated from the sale of non-customized consumer products to customers.
Revenue is recognized when control of, and title to, the product sold transfers to the customer.
Therefore, the timing and amount of revenue recognized was not materially impacted by the new
guidance. We have thus concluded that the adoption of the guidance did not have a material impact on
our consolidated financial statements. The provisions of the new guidance did however impact the
classification of certain consideration paid to our customers. We therefore have reclassified an
immaterial amount of such payments from SG&A to a reduction of net sales revenue for all periods
presented. Also, in accordance with the guidance, we reclassified an immaterial amount of estimated
sales returns from a reduction of receivables to accrued expenses and other current liabilities for all
periods presented. We elected to adopt the guidance using the full retrospective method.
The effect of the adoption of ASU 2014-9 on the consolidated financial statements from continuing
operations is as follows:
(in thousands)
Balance Sheet
Receivables
Accrued expenses and other current liabilities
Before Reclassification
February 28, 2018
$
$
273,168
165,864
After Reclassification
Reclassification
2,397
$
2,397
$
$
$
February 28, 2018
275,565
168,261
67
Table of Contents
(in thousands)
Before Reclassification
After Reclassification
Statement of Income
Sales revenue, net
SG&A
Fiscal Year Ended
February 28, 2018
$
$
1,489,747
435,735
Reclassification
$
$
(10,902) $
(10,902) $
Fiscal Year Ended
February 28, 2018
1,478,845
424,833
(in thousands)
Before Reclassification
After Reclassification
Statement of Income
Sales revenue, net
SG&A
Fiscal Year Ended
February 28, 2017
$
$
1,406,676
409,993
Reclassification
$
$
(9,141) $
(9,141) $
Fiscal Year Ended
February 28, 2017
1,397,535
400,852
Note 4 – Discontinued Operations
In December 2017, we completed the divestiture of the Nutritional Supplements segment through the
sale of Healthy Directions LLC and its subsidiaries ("Healthy Directions") to Direct Digital, LLC. The
purchase price from the sale was comprised of $46.0 million in cash, which was 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 was adjusted based on a settlement with respect to the
calculation of the performance of Healthy Directions through February 28, 2018. During the third quarter
of fiscal 2019, we reduced the estimated value of the supplemental payment to $10.8 million and
recorded a corresponding pre-tax charge of $5.8 million ($4.4 million after tax) to discontinued
operations. Also, during fiscal 2019, we recorded additional net charges of $1.5 million ($1.3 million after
tax) to discontinued operations, resulting primarily from the resolution of certain contingencies. 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.
There were no balance sheet amounts related to discontinued operations for either period presented.
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")
Asset impairment charges (2)
Restructuring charges
Operating loss
Gain (loss) on sale before income tax
Interest expense
Loss before income tax
Income tax benefit
Loss from discontinued operations
Fiscal Years Ended February 28,
2018 (1)
2017
2019
$
— $
99,013
$
130,543
—
—
—
—
—
—
28,744
70,269
72,419
132,297
621
(135,068)
(7,257)
—
1,624
(367)
(7,257)
(133,811)
1,578
(5,679) $
49,375
(84,436) $
$
37,632
92,911
88,742
9,500
—
(5,331)
—
(497)
(5,828)
2,207
(3,621)
(1) Fiscal 2018 includes approximately 9.6 months of operating results prior to the divestiture on December 20, 2017.
(2)
Impairment charges 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.
68
Table of Contents
Note 5 – Property and Equipment
A summary of property and equipment is as follows:
(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)
February 28,
2019
February 28,
2018
—
$
12,644
$
3 — 40
3 — 15
3 — 7
—
113,820
84,711
36,378
6,529
254,082
(123,744)
$
130,338
$
12,800
106,870
79,657
33,466
5,912
238,705
(115,202)
123,503
We recorded $15.7, $14.9 and $14.2 million of depreciation expense including $4.1, $3.7 and $4.6 million
in cost of goods sold and $11.6, $11.2 and $9.6 million in SG&A in the consolidated statements of
income for fiscal 2019, 2018 and 2017, 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 $7.9, $5.5, and
$5.3 million for fiscal 2019, 2018 and 2017, respectively.
Note 6 – Accrued Expenses and Other Current Liabilities
A summary of accrued expenses and other current liabilities is as follows:
(in thousands)
Accrued compensation, benefits and payroll taxes
Accrued sales discounts and allowances
Accrued sales returns
Accrued advertising
Accrued legal fees and settlements
Other
Total accrued expenses and other current liabilities
Note 7 – Hydro Flask Acquisition
February 28, 2019
February 28, 2018
$
$
36,782
$
28,655
23,316
26,549
2,604
47,254
37,666
28,311
24,842
25,324
17,243
34,875
165,160
$
168,261
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.
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
69
Table of Contents
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 the acquisition date of March
18, 2016, excluding cash acquired:
(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.
The impact of the Hydro Flask acquisition on our consolidated statements of income for fiscal 2017 is as
follows:
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.
70
Table of Contents
HYDRO FLASK - PRO FORMA IMPACT ON CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
As if the acquisition had been completed on March 1, 2015
(in thousands, except earnings per share data)
Sales revenue, net
Net income
Earnings per share:
Basic
Diluted
Note 8 – Goodwill and Intangibles
Fiscal Years Ended the Last Day
of February
2017
2016
$
1,410,171
$
1,450,530
144,947
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.
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.
The fair values used in our impairment tests are determined using estimated future discounted cash
flows and relative market-based 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 2019 - We did not record any impairment charges related to goodwill or
intangible assets during fiscal 2019.
Impairment Testing in Fiscal 2018 - As a result of our testing of indefinite-lived trademarks, we
recorded non-cash asset impairment charges of $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
71
Table of Contents
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 2017 - As a result of our testing of indefinite-lived trademarks, we
recorded non-cash impairment charges of $2.9 million ($2.5 million after tax) during fiscal 2017. The
charges were related to certain trademarks in our Beauty segment, which were written down to estimated
fair value, determined on the basis of estimated future discounted cash flows using the relief from royalty
valuation method.
The following tables summarize the changes in our goodwill and intangible assets by segment for fiscal
2019 and 2018:
Balances at
February 28, 2018
Year Ended February 28, 2019
Balances at
February 28, 2019
(in thousands)
Housewares:
Goodwill
Weighted
Average
Life
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Additions
Impairments
Retirement
Adjustments
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Accumulated
Amortization
Net Book
Value
$
282,056 $
— $
— $
— $
— $
282,056 $
— $
— $
282,056
Trademarks - indefinite
Other intangibles - finite
14.7
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
Total
4.7
5.5
9.6
3.8
4.6
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
—
—
—
—
—
—
—
—
—
(46,490)
—
—
—
—
—
182,796
(46,490)
—
684
684
—
—
1,750
—
381
2,131
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(95)
(95)
—
—
—
—
—
—
—
—
—
—
—
—
—
134,200
41,417
457,673
284,913
54,000
17,050
7,400
117,967
481,330
81,841
30,407
150
10,300
13,696
46,402
—
—
—
—
—
—
—
—
—
(46,490)
—
—
—
—
—
—
134,200
(19,398)
22,019
(19,398)
438,275
—
—
(15,402)
—
284,913
54,000
1,648
7,400
(87,953)
30,014
(103,355)
377,975
—
—
(102)
—
(12,482)
(46,126)
35,351
30,407
48
10,300
1,214
276
182,796
(46,490)
(58,710)
77,596
$ 1,119,079 $
(46,490)
$
2,815 $
— $
(95)
$ 1,121,799 $
(46,490) $
(181,463) $
893,846
72
Table of Contents
(in thousands)
Housewares:
Goodwill
Balances at
February 28, 2017
Year Ended February 28, 2018
Balances at
February 28, 2018
Weighted
Average
Life
(Years)
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Additions
Impairments
Retirement
Adjustments
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Accumulated
Amortization
Net Book
Value
Trademarks - indefinite
Other intangibles - finite
15.7
Subtotal
Health & Home:
Goodwill
Trademarks - indefinite
Licenses - finite
Licenses - indefinite
Other Intangibles - finite
5.8
Subtotal
Beauty:
Goodwill
Trademarks - indefinite
Trademarks - finite
10.6
Licenses - indefinite
Licenses - finite
Other intangibles - finite
4.8
1.7
Subtotal
Total
$
282,056 $
— $
— $
— $
— $
282,056 $
— $
— $
282,056
134,200
40,393
456,649
284,913
54,000
15,300
7,400
116,982
478,595
81,841
45,854
150
10,300
13,696
46,402
—
—
—
—
—
—
—
—
—
(46,490)
—
—
—
—
—
198,243
(46,490)
—
607
607
—
—
—
—
605
605
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(15,447)
—
—
—
—
(15,447)
—
(173)
(173)
—
—
—
—
—
—
—
—
—
—
—
—
—
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
—
—
—
—
—
—
—
—
—
(46,490)
—
—
—
—
—
—
134,200
(17,530)
23,298
(17,530)
439,554
—
—
(15,300)
—
284,913
54,000
—
7,400
(77,128)
40,458
(92,428)
386,771
—
—
(97)
—
(12,166)
(45,133)
35,351
30,407
53
10,300
1,530
1,269
182,796
(46,490)
(57,396)
78,910
$ 1,133,487 $
(46,490)
$
1,212 $
(15,447) $
(173)
$ 1,119,079 $
(46,490) $
(167,354) $
905,235
The following table summarizes the amortization expense attributable to intangible assets recorded in
SG&A in the consolidated statements of income for fiscal 2019, 2018 and 2017, as well as estimated
amortization expense for fiscal 2020 through 2024:
Aggregate Amortization Expense (in thousands)
Fiscal 2019
Fiscal 2018
Fiscal 2017
Estimated Amortization Expense (in thousands)
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
$
$
14,204
18,854
22,024
13,142
10,563
4,057
3,986
3,679
Note 9 – Share-Based Compensation Plans
During the fiscal year we had equity transactions under four expired and two active share-based
compensation plans. The expired plans consist of a stock option and restricted stock plan adopted in
1998 (the “1998 Plan"), the Helen of Troy Limited 2008 Stock Incentive Plan (the “2008 Stock Incentive
Plan”), the Helen of Troy Limited 2008 Non-Employee Directors Stock Incentive Plan (the “2008
Directors’ Plan”), and the Helen of Troy Limited 2008 Employee Stock Purchase Plan (the “2008 ESPP”).
The active plans consists of the 2018 Stock Incentive Plan (the "2018 Plan") and the 2018 Employee
Stock Purchase Plan (the "2018 ESPP"). 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.
73
Table of Contents
Expired Plans
The 1998 Plan: The Plan expired by its terms on August 25, 2008. As of February 28, 2019, there were
no shares of common stock subject to exercise or outstanding under the plan.
The 2008 Stock Incentive Plan: Expired by its terms on September 1, 2018. As of February 28, 2019,
there were 162,938 shares of common stock subject to options outstanding under the plan. There were
351,750 restricted stock units outstanding as of February 28, 2019 that may be settled for up to 539,122
shares of common stock.
The 2008 Directors Plan: Expired by its terms on September 1, 2018. As of February 28, 2019, there
were no shares outstanding under the plan.
The 2008 Employee Stock Purchase Plan: Expired by its terms on September 1, 2018. During fiscal
2019, 17,435 shares were purchased under this plan.
Active Plans
The 2018 Plan: On August 22, 2018, our shareholders approved the 2018 Plan. The 2018 Plan permits
the granting of stock options, stock appreciation rights, RSAs, RSUs, PSUs, and other stock-based
awards. The aggregate number of shares for issuance under the 2018 Plan will not exceed 2,000,000
shares.
A summary of shares available for issue under the 2018 Plan follows:
Shares originally authorized
Less share awards issued
Plus forfeitures
Less share awards previously vested and settled
Subtotal
Less RSUs issuable upon vesting (1)
Less maximum PSUs issuable upon vesting (1)
Shares available for issuance
2,000,000
(2,128)
4,300
—
2,002,172
(78,553)
—
1,923,619
(1) RSUs and PSUs potentially issuable are estimated assuming the maximum payouts adjusted for actual forfeitures to date.
The 2018 ESPP: On August 22, 2018, our shareholders approved the 2018 ESPP. The aggregate
number of shares of common stock that may be purchased under the 2018 ESPP will not exceed
750,000 shares. 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, not to exceed $25,000 of the fair
market value of such shares for any calendar year. The purchase price for shares acquired under the
2018 ESPP 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, 2028.
Shares of common stock purchased under the 2018 ESPP 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 2019, there were 14,222 shares purchased under the plan.
74
Table of Contents
We recorded share-based compensation expense in SG&A as follows:
(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
Fiscal Years Ended February 28,
2018
2019
2017
$
$
$
$
829
526
20,047
651
22,053
(1,395)
20,658
0.79
0.79
$
$
$
$
1,634
525
12,631
264
15,054
(1,669)
13,385
0.49
0.49
$
$
$
$
2,614
514
10,243
490
13,861
(1,762)
12,099
0.44
0.43
A summary of our total unrecognized share-based compensation expense as of February 28, 2019 is as
follows:
(in thousands, except weighted average expense period data)
Stock options
Restricted stock units (RSUs and PSUs)
Stock Options
Unrecognized
Compensation
Expense
$
244
18,519
Weighted
Average
Period of
Recognition
(in months)
8.6
26.4
A summary of stock option activity under our expired share-based compensation plans follows:
(in thousands, except contractual term and
per share data)
Outstanding at February 29, 2016
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2017
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2018
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2019
Exercisable at February 28, 2019
Weighted
Average
Exercise
Price
(per share)
Weighted
Average
Grant Date
Fair Value
(per share)
Weighted
Average
Remaining
Contractual
Term
(in years)
Intrinsic
Value
Options
649
$
53.94
$
19.52
28.74
20.54
—
32.04
—
6.1
$
26,847
9,152
5.0
18,097
5,400
4.3
9,606
$
$
48.64
53.91
3.6
3.4
$
$
6,414
7,925
6,811
102.04
43.07
65.68
57.41
—
52.28
72.37
58.35
—
49.82
80.33
63.47
58.20
2
(170)
(33)
448
—
(126)
(22)
300
—
(126)
(11)
163
126
$
$
75
Table of Contents
A summary of non-vested stock option activity and changes under our expired share-based
compensation plans follows:
(in thousands, except per share data)
Outstanding at February 29, 2016
Grants
Vested or forfeited
Outstanding at February 28, 2017
Grants
Vested or forfeited
Outstanding at February 28, 2018
Grants
Vested or forfeited
Outstanding at February 28, 2019
Weighted
Average
Grant Date
Fair Value
(per share)
20.81
$
28.74
18.95
22.48
—
25.02
19.31
—
14.67
30.44
$
Non-
Vested
Options
521
2
(243)
280
—
(155)
125
—
(88)
37
There were no options granted during fiscal 2019 and 2018. The fair value of our stock option grants
were estimated using a Black-Scholes option pricing model with the following assumptions for fiscal
2017:
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)
Restricted Stock Awards
Fiscal Year Ended
February 28,
2017
1.2%
—%
33.4%
33.4%
4.1
Under the 2008 Directors’ Plan for fiscal 2019, 2018 and 2017, we issued 2,737, 5,658 and 5,285 shares
subject to restricted stock awards to non-employee Board members with grant date fair values of $0.2,
$0.5 and $0.5 million, respectively, and share prices of $89.77, $92.95, and $92.98 respectively. The
restricted stock awards vested immediately, were valued at the fair value of our common stock at the
date of grant, and accordingly, were expensed at the time of the grants.
Under the 2018 Plan during fiscal 2019, we issued 2,128 shares subject to restricted stock awards to
non-employee Board members with a total grant date fair value of 0.3 million, or $131.74 per share. No
restricted stock awards under the 2018 Plan were granted in fiscal 2018 or 2017. The restricted stock
awards vested immediately, were valued at the fair value of our common stock at the date of grant, and
accordingly, were expensed at the time of the grants.
76
Table of Contents
Restricted Stock Units
A summary of restricted stock unit activity and changes under our equity incentive plans are as follows:
(in thousands, except per share data)
Outstanding at February 29, 2016 (1)
Granted (1)
Vested or Forfeited (2)
Outstanding at February 28, 2017
Granted (1)
Vested or Forfeited (2)
Outstanding at February 28, 2018
Granted (1)
Vested or Forfeited (2)
Outstanding at February 28, 2019
Expired Equity Plan
Active Equity Plan
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
(per share)
Fair Value
at Grant
Date
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
(per share)
Fair Value
at Grant
Date
213 $
66.50 $
20,311
— $
— $
—
162
(53)
322
262
(274)
310
197
(155)
96.90
70.14
81.19
96.44
78.71
90.05
84.02
82.19
31,418
27,944
—
—
—
—
—
—
79
(5)
—
—
—
—
—
—
125.40
124.71
—
—
352 $
92.45 $
32,519
74 $
125.45 $
9,202
(1) The expired plan reflects 141,541, 192,002 and 15,643 RSUs, which vested and settled throughout the year at a
weighted average fair values of $81.23, $62.88 and $60.28 per share in fiscal 2019, 2018 and 2017, respectively.
(2) The active plan reflects 900 RSUs which vested and settled throughout the year at a weighted average fair value of
$120.70 per share in fiscal 2019.
Note 10 – 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 2019, 2018 and 2017
were $4.0, $3.9 and $3.2 million, respectively.
Note 11 – 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. 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, 2019, our
repurchase authorization allowed for the purchase of $110.5 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.
77
Table of Contents
The following table summarizes our share repurchase activity for the periods shown:
(in thousands, except share and per share data)
Common stock repurchased on the open market:
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 12 – Restructuring Plan
Fiscal Years Ended February 28,
2017
2018
2019
1,875,469
$ 212,080
113.08
$
59,024
5,413
91.70
$
$
717,300
65,795
91.73
75,785
7,258
95.77
$
$
$
$
$
$
$
$
922,731
75,000
81.28
6,286
595
94.61
In October 2017, we announced a restructuring plan (referred to as “Project Refuel”) intended to enhance
the performance primarily in the Beauty and former Nutritional Supplements segments. Project Refuel
includes charges for a reduction-in-force and the elimination of certain contracts. During the first quarter
of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply
chain structure. We are targeting total annualized profit improvements of approximately $8.0 million to
$10.0 million over the duration of the plan. We estimate the plan to be completed during fiscal 2020 and
expect to incur total restructuring charges of approximately $7.0 million. Restructuring provisions are
determined based on estimates prepared at the time the restructuring actions are approved by
management and are revised periodically.
During fiscal 2019, we incurred $3.6 million of pre-tax restructuring costs related to employee severance
and termination benefits. Since implementing Project Refuel, we have incurred $5.4 million of pre-tax
restructuring costs related to employee severance and termination benefits and contract termination
costs as of February 28, 2019. During fiscal 2019, we made total cash restructuring payments of $3.1
million and had a remaining liability of $1.2 million as of February 28, 2019. Since implementing Project
Refuel, we have made total cash restructuring payments of $4.2 million as of February 28, 2019.
Note 13 – 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 Contract – We have an employment contract with Mr. Julien Mininberg, our CEO, that was
amended and restated on November 7, 2018. The amended and restated agreement, among other
things, extended the term of Mr. Mininberg’s employment agreement from March 1, 2019 through
February 28, 2023. The agreement provides a base salary, potential incentive bonus and long-term
incentive compensation. The agreement also specifies 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.
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
78
Table of Contents
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. Following the remand, we entered into a settlement agreement, filed a Stipulation of Dismissal
with Prejudice and made a settlement payment of $15.0 million on May 31, 2018.
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.
Contractual Obligations and Commercial Commitments – Our contractual obligations and
commercial commitments at the end of fiscal 2019 were:
(in thousands)
Floating rate debt
Long-term incentive plan payouts
Interest on floating rate debt (1)
Open purchase orders
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
Total contractual obligations (2)
Fiscal Years Ended the Last Day of February:
2020
2021
2022
2023
2024
After
Total
1 year
2 years
3 years
4 years
5 years
5 years
$ 323,607 $
1,900 $
1,900 $ 303,100 $
1,900 $ 14,807 $
12,708
7,012
3,481
32,237
11,453
11,387
234,659
234,659
—
2,215
8,879
—
49,159
37,401
69,482
4,602
12,650
18,933
5,171
4,602
12,855
13,040
6,411
6,678
—
6,527
6,411
—
—
518
—
7,914
5,530
5,743
—
—
—
—
2,700
—
5,078
40,401
—
—
—
—
—
—
—
—
$ 763,855 $ 296,380 $ 42,712 $ 340,172 $ 21,605 $ 22,585 $ 40,401
(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, 2019 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, 2019 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.
79
Table of Contents
(2) In addition to the contractual obligations and commercial commitments in the table above, as of February 28, 2019, we
have recorded a provision for uncertain tax positions of $3.2 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 14 – 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 $1.0 billion as of
February 28, 2019. The commitment under the Credit Agreement terminates on December 7, 2021.
Borrowings accrue interest under one of two alternative methods (based upon a base rate or LIBOR) 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, 2019, the outstanding revolving loan
principal balance was $301.2 million (excluding prepaid financing fees) and the balance of outstanding
letters of credit was $9.0 million. As of February 28, 2019, the amount available for borrowings under the
Credit Agreement was $689.8 million. Covenants in our debt agreements limit the amount of total
indebtedness we can incur. As of February 28, 2019 these covenants effectively limited our ability to
incur more than $548.4 million of additional debt from all sources, including our Credit Agreement, or
$689.8 million in the event a qualified acquisition is consummated.
A summary of our long-term debt follows:
(dollars in thousands)
Mississippi Business Finance Corporation Loan (the "MBFC Loan")
(1)
Credit Agreement
(2)
Total long-term debt
Less current maturities of long-term debt
Long-term debt, excluding current maturities
Original
Date
Borrowed
Interest
Rates
Matures February 28, 2019 February 28, 2018
03/13
01/15
Floating
03/23
$
Floating
12/21
$
22,335 $
298,449
320,784
(1,884)
318,900 $
24,219
265,650
289,869
(1,884)
287,985
(1) The MBFC Loan is unsecured with an original balance of $37.6 million and incurs floating interest based on applicable
LIBOR plus a margin of up to 2.0% , or a base rate plus a margin of up to 1.0%, 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 principal balance is payable as follows: $1.9 million annually on March 1, 2019 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) Floating interest rates are hedged with an interest rate swap to effectively fix interest rates on $225 million of the
outstanding principal balance under the Credit Agreement. Notes 15 and 16 to these consolidated financial statements
provide additional information regarding the interest rate swap.
At February 28, 2019 and 2018, our long-term debt has floating interest rates, and its book value
approximates its fair 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,
2019.
80
Table of Contents
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:
(in thousands)
Average borrowings outstanding (1)
Average interest rate during each year (2)
Interest rate range during each year
Weighted average interest rates on borrowings outstanding at year end
Fiscal Years Ended February 28,
2019
2018
2017
$
290,860
$ 382,960
$
498,420
3.2%
2.8% - 5.5%
3.6%
2.7%
2.3 - 4.8%
2.9%
2.2%
1.9 - 4.3%
2.3%
(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.
The following table contains a summary of the components of our interest expense for the periods
covered by our consolidated statements of income:
(in thousands)
Interest and commitment fees
Deferred finance costs
Interest rate swap settlements, net
Cross-currency debt swap
Total interest expense
Note 15 – Fair Value
Fiscal Years Ended February 28,
2019
2018
2017
11,366 $
13,084 $
13,745
1,015
(515)
(147)
887
54
(74)
706
—
(90)
11,719 $
13,951 $
14,361
$
$
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.
81
Table of Contents
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 2019 and 2018:
(in thousands)
Assets:
Money market accounts
Interest rate swaps
Foreign currency contracts
Total assets
Liabilities:
Floating rate debt
Interest rate swaps
Foreign currency contracts
Total liabilities
(in thousands)
Assets:
Money market accounts
Interest rate swap
Foreign currency contracts
Total assets
Liabilities:
Floating rate debt
Foreign currency contracts
Total liabilities
Fair Values at
February 28, 2019
(level 2)(1)
$
$
$
$
915
512
1,692
3,119
320,784
339
563
321,686
Fair Values at
February 28, 2018
(level 2)(1)
$
$
$
1,107
2,481
642
4,230
289,869
2,606
292,475
(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.
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, zero cost collars and cross-currency debt swaps. See Notes 1, 16 and 17 to these
consolidated financial statements for more information on our hedging activities.
We classify our floating rate debt as a Level 2 item because the estimation of the fair market value of
these financial assets requires the use of current market rates of interest for obligations with comparable
remaining terms. Such comparable rates are considered significant other observable market inputs. Our
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 8 to these consolidated financial statements contains additional information regarding
impairment testing and related intangible asset impairments.
82
Table of Contents
The table below presents other non-financial assets measured on a non-recurring basis using significant
unobservable inputs (Level 3) for fiscal 2019 and 2018:
(in thousands)
Beginning balances
Total income (expense):
Included in net income - realized
Acquired during the period
Retirement adjustments during the period
Ending balances
Fiscal Years Ended
2018
2019
$
905,235 $
938,324
(14,109)
2,815
(95)
$
893,846 $
(34,128)
1,212
(173)
905,235
Note 16 – 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 2019, approximately 13% of our net
sales revenue was in foreign currency. These sales were primarily denominated in British Pounds,
Euros, Mexican Pesos and Canadian Dollars. 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 $1.3, $(3.1) and $0.5 million in SG&A during fiscal 2019, 2018 and 2017,
respectively.
We hedge against certain foreign currency exchange rate-risk by using a series of forward contracts and
zero-cost collars 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, 2019 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 interest rate swaps to
effectively fix interest rates on $225.0 million of the outstanding principal balance under the Credit
Agreement, which totaled $301.2 million as of February 28, 2019.
83
Table of Contents
The following table summarizes the fair values of our various derivative instruments at the end of fiscal
2019 and 2018:
February 28, 2019
Final
Settlement
Date
Notional
Amount
Prepaid
Expenses
and Other
Current
Assets
Other
Assets
Accrued
Expenses
and Other
Current
Liabilities
Other
Liabilities
Non-current
€9,500
$
11
$ — $
— $
—
—
—
—
13
—
339
352
—
292
292
644
—
—
—
—
—
—
208
565
773
773
(in thousands)
Derivatives designated as hedging instruments
Zero-cost collar - Euro
Foreign currency contracts - sell Euro
Foreign currency contracts - sell Canadian Dollars
Zero-cost collar - Pounds
Foreign currency contracts - sell Pounds
Foreign currency contracts - sell Mexican Pesos
Interest rate swaps
Subtotal
Derivatives not designated under hedge accounting
Hedge
Type
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
2/2020
2/2020
2/2020
5/2020
5/2020
9/2019
1/2024
€29,000
$16,000
£4,500
£19,500
$30,000
$225,000
Foreign currency contracts - cross-currency debt swaps - Euro
Foreign currency contracts - cross-currency debt swaps - Pound
(1)
(1)
04/2020
04/2020
€5,280
£6,395
1,047
168
—
248
—
512
1,986
—
—
—
—
—
—
—
—
—
—
218
—
218
218
—
—
200
—
58
—
258
—
—
—
$
258
$
$
1,986
$
February 28, 2018
Subtotal
Total fair value
Derivatives designated as hedging instruments
Foreign currency contracts - sell Euro
Foreign currency contracts - sell Canadian Dollars
Foreign currency contracts - sell Pounds
Foreign currency contracts - sell Mexican Pesos
Interest rate swap
Subtotal
Derivatives not designated under hedge accounting
Final
Settlement
Date
Notional
Amount
Prepaid
Expenses
and Other
Current
Assets
Other
Assets
Accrued
Expenses
and Other
Current
Liabilities
Other
Liabilities
Non-current
€38,000
$
— $
102
$
1,320
$
Hedge
Type
Cash flow
Cash flow
Cash flow
Cash flow
7/2019
6/2019
4/2019
5/2018
$27,750
£19,500
$20,000
Cash flow
12/2021
$100,000
378
—
5
539
922
—
—
—
101
56
—
1,942
2,201
—
—
—
—
513
—
—
1,833
—
—
—
$
922
$ 2,201
$
1,833
$
Foreign currency contracts - cross-currency debt swap - Euro
Foreign currency contracts - cross-currency debt swaps - Pound
(1)
(1)
04/2020
04/2020
€5,280
£6,395
Subtotal
Total fair value
(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.
The pre-tax effect of derivative instruments for fiscal 2019 and 2018 is as follows:
Fiscal Years Ended February 28,
Gain (Loss)
Recognized in OCI
(effective portion)
Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income (Loss) into Income
Gain (Loss) Recognized
As Income
(in thousands)
2019
2018
Location
2019
2018
Location
2019
2018
Currency contracts - cash flow hedges
$
(94) $
1,758
SG&A
$
(2,488) $
4,364
$ — $ —
Interest rate swaps - cash flow hedges
(2,308)
2,481
Interest expense
Cross-currency debt swaps - principal
Cross-currency debt swaps - interest
—
—
—
—
—
—
—
— Interest expense
— SG&A
— Interest Expense
515
700
147
(54)
(1,479)
74
Total
$
(2,402) $
4,239
$
(2,488) $
4,364
$ 1,362
$ (1,459)
We expect a gain of $1.7 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
84
Table of Contents
the underlying contracts settle. See Notes 1, 15 and 17 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.
The following table summarizes our cash and cash equivalents at the end of fiscal 2019 and 2018:
(in thousands)
Cash, interest and non-interest-bearing accounts
Money market funds
Total cash and cash equivalents
February 28, 2019
February 28, 2018
Carrying
Amount
Range of
Interest Rates
Carrying
Amount
$
$
10,956
915
11,871
0.00 to 0.30% $
0.00 to 1.25%
$
19,631
1,107
20,738
Range of
Interest Rates
0.00 to 0.35%
0.00 to 0.03%
85
Table of Contents
Note 17 – Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component and related tax effects
for fiscal 2019 and 2018 were as follows:
(in thousands)
Balance at February 28, 2017
Other comprehensive income before reclassification
Amounts reclassified out of accumulated other comprehensive income
Tax effects
Other comprehensive income (loss)
Balance at February 28, 2018
Other comprehensive income (loss) before reclassification
Amounts reclassified out of accumulated other comprehensive income
Tax effects
Other comprehensive income (loss)
Balance at February 28, 2019
Interest
Rate Swaps
$
— $
2,481
—
(776)
1,705
1,705
(2,308)
—
735
(1,573)
132
$
$
$
Foreign
Currency
Contracts
1,173
1,758
(4,364)
359
(2,247)
(1,074) $
(94)
2,488
(261)
2,133
1,059
$
$
$
Total
1,173
4,239
(4,364)
(417)
(542)
631
(2,402)
2,488
474
560
1,191
See Notes 1, 15 and 16 to these consolidated financial statements for additional information regarding
our hedging activities.
Note 18 – Segment and Geographic Information
The following table contains segment information included in continuing operations.
SEGMENT INFORMATION
(in thousands)
Fiscal 2019
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Fiscal 2018
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Total
1,564,151
—
3,586
199,379
1,649,335
26,385
29,927
Total
1,478,845
15,447
1,857
169,062
1,623,717
13,605
33,730
Housewares
Health & Home
Beauty
$
523,807 $
695,217 $
345,127 $
—
926
100,743
698,519
16,023
6,048
—
686
68,448
686,335
8,508
17,058
—
1,974
30,188
264,481
1,854
6,821
Beauty
345,779 $
15,447
1,637
17,644
283,468
1,352
11,155
Housewares(1) Health & Home
$
459,004 $
674,062 $
—
220
89,319
664,622
8,537
5,825
—
—
62,099
675,627
3,716
16,750
86
Table of Contents
Fiscal 2017
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Housewares(1) Health & Home
$
418,558 $
626,982 $
—
—
89,020
639,922
5,652
5,795
—
—
51,072
688,828
5,192
20,483
Beauty
351,995
2,900
—
29,572
287,485
4,663
9,897
Total
1,397,535
2,900
—
169,664
1,616,235
15,507
36,175
(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.
GEOGRAPHIC INFORMATION
The following table provides net sales revenue by geographic region, in U.S. Dollars:
(in thousands)
Sales revenue, net by geographic region
United States
Canada
EMEA
Asia Pacific
Latin America
Total sales revenue, net
Fiscal Years Ended
February 28,
(1)
2019
(1) (2)
2018
(1) (2)
2017
$ 1,221,806 $ 1,161,698 $ 1,104,870
66,855
58,856
58,631
143,024
143,668
133,172
90,073
42,393
75,376
39,247
60,532
40,330
$ 1,564,151 $ 1,478,845 $ 1,397,535
(1) We adopted ASU 2014-09, Revenue of Contracts with Customers (Topic 606) in the first quarter of fiscal 2019 and have
reclassified amounts in the prior year’s statements of income to conform to the current period’s presentation. For more
information see Note 3 to these 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.
Worldwide sales to our largest customer and its affiliates accounted for approximately 16%, 17% and
17% of our net sales revenue in fiscal 2019, 2018 and 2017, respectively. Sales to this customer are
made within the Beauty and Health & Home segments. Of these sales, approximately 78%, 79%, and
79% for fiscal 2019, 2018 and 2017, respectively, were within the United States. Sales to our second
largest customer accounted for 16%, 13% and 10% of our net sales in fiscal 2019, 2018 and 2017,
respectively. Sales to Target Corporation accounted for approximately 10% of our consolidated net sales
revenue in fiscal 2019, 2018 and 2017, respectively. No other customers accounted for 10% or more of
net sales revenue during the periods presented.
87
Table of Contents
Our domestic and international long-lived assets were as follows:
(in thousands)
United States
International:
Barbados
Other international
Subtotal
Total
Fiscal Years Ended February 28,
2019
2018
2017
$
416,521 $
437,920 $
409,337
499,589
128,566
628,155
496,258
131,831
628,089
499,064
159,490
658,554
$
1,044,676 $
1,066,009 $
1,067,891
The table above classifies assets based upon the country where we hold legal title.
88
Table of Contents
Note 19 – Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data is as follows (in thousands except share data):
SELECTED QUARTERLY FINANCIAL DATA
Fiscal Year 2019:
Sales revenue, net
Gross profit
Asset impairment charges
Restructuring charges
Income from continuing operations
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
Fiscal Year 2018:
Sales revenue, net
Gross profit
Asset impairment charges
Restructuring 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
May
354,679 $
146,558
—
1,725
38,173
(381)
August
November
February
Total
393,548 $
155,173
—
859
44,017
—
431,081 $
181,845
—
25
54,320
(4,850)
384,843 $ 1,564,151
641,106
157,530
—
—
3,586
977
174,224
37,714
(5,679)
(448)
1.44 $
(0.01)
1.42 $
1.43 $
(0.01)
1.42 $
1.67 $
—
1.67 $
1.66 $
—
1.66 $
2.08 $
(0.19)
1.90 $
1.49 $
(0.02)
1.47 $
2.06 $
(0.18)
1.88 $
1.47 $
(0.02)
1.45 $
6.68
(0.22)
6.46
6.62
(0.22)
6.41
May
325,491 $
131,570
4,000
—
27,308
(21,440)
August
November
February
Total
344,949 $
143,477
—
—
34,572
(25,639)
420,841 $
178,138
—
1,165
58,624
(89,060)
387,564 $ 1,478,845
611,199
158,014
15,447
11,447
1,857
692
128,882
8,378
(84,436)
51,703
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
$
$
$
$
$
$
$
$
$
$
(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 20 - 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,
89
Table of Contents
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. statutory corporate income tax rate from 35% to 21% and
established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed
earnings of certain foreign subsidiaries.
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 recorded a provisional tax charge of $17.9 million in fiscal 2018 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. In accordance with SAB 118, we completed the accounting for the tax effects of the Tax Act and
recorded immaterial adjustments to the provisional tax charge during the fourth quarter of fiscal 2019.
The Tax Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income
(“GILTI”). The Company elected to account for the tax on GILTI as a period cost and therefore has not
recorded deferred taxes related to GILTI on its foreign subsidiaries.
In connection with the enactment of the Tax Act, we repatriated $40 million of cash held in our U.S.
owned foreign subsidiaries without such funds being subject to further U.S. federal income tax. As of
February 28, 2019, we had approximately $28.1 million of undistributed earnings. We intend to continue
to reinvest these earnings outside the United States for the foreseeable future. While U.S. federal tax
expense has been recognized as a result of the Tax Act, no deferred tax liabilities with respect to items
such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been
recognized. It is not practicable for us to determine the amount of deferred income taxes associated with
these undistributed earnings.
Our components of income before income tax expense are as follows:
(in thousands)
U.S.
Non-U.S.
Total
Fiscal Years Ended February 28,
2019
2018
2017
$
$
32,135 $
23,824 $
20,878
155,865
131,614
134,839
188,000 $
155,438 $
155,717
90
Table of Contents
Our components of income tax expense (benefit) are as follows:
(in thousands)
U.S.
Current
Deferred
Non-U.S.
Current
Deferred
Total
Fiscal Years Ended February 28,
2019
2018
2017
$
2,460 $
3,380 $
10,480
12,940
19,578
22,958
2,102
(1,266)
836
1,912
1,686
3,598
19,195
(10,475)
8,720
(290)
2,977
2,687
$
13,776 $
26,556 $
11,407
Our total income tax expense differs from the amounts computed by applying the U.S. statutory tax rate
to income before income taxes. A income tax rate reconciliation of these differences are as follows:
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 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
Effect of nondeductible executive compensation
Effect of base erosion and anti-abuse tax
Other items
Effective income tax rate
Fiscal Years Ended February 28,
2019
2018
2017
21.0 %
1.2 %
(10.3)%
(5.9)%
(1.9)%
1.8 %
0.2 %
— %
(0.1)%
(0.6)%
0.9 %
1.0 %
— %
7.3 %
32.7 %
0.5 %
(19.5)%
(5.2)%
(5.3)%
2.1 %
0.3 %
2.2 %
11.5 %
(1.3)%
0.6 %
— %
(1.5)%
17.1 %
35.0 %
0.5 %
(20.1)%
(7.3)%
(3.6)%
2.1 %
0.4 %
0.4 %
— %
(1.1)%
— %
— %
1.0 %
7.3 %
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 currently have an indefinite tax holiday in Macau conditioned on the subsidiary
meeting certain employment and investment thresholds. The Macau Offshore Law and its
supplementary regulations that grant tax incentives to approved offshore institutions will be abolished on
January 1, 2021. Existing approved offshore institutions such as ours can continue to operate under the
offshore regime until the end of the calendar year 2020. Beginning in calendar year 2021, we believe our
Macau subsidiary will become subject to a statutory corporate income tax of approximately 12%. The
ultimate impact of this change, if any, on our overall effective tax rate will depend on a variety of factors
including our mix of income by jurisdiction, transfer pricing considerations and the specific tax regulations
applicable to us when we are no longer under the Macau Offshore regime. It is not practicable for us to
determine the potential impact on our financial statements until the tax changes in Macau are fully
established and our transfer pricing analysis is complete. 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
91
Table of Contents
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 2019 and 2018 are as follows:
(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
February 28,
2019
2018
$
18,300 $
32,829
4,680
7,806
8,293
39,079
(17,086)
(19,750)
$
2,243 $
4,767
7,183
7,385
52,164
(17,747)
(24,859)
9,558
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
recoverable. In fiscal 2019, the $0.7 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.
The composition of our operating loss carryforwards at the end of fiscal 2019 is as follows:
February 28, 2019
Tax Year
Expiration
Date Range
Deferred
Tax
Assets
Operating
Loss
Carryforward
Indefinite
$
1,051 $
(in thousands)
U.S. federal operating loss carryforward
U.S. state operating loss carryforward
Non-U.S. operating loss carryforwards with definite carryover periods
2021 - 2037
2020 - 2036
Non-U.S. operating loss carryforwards with indefinite carryover periods
Indefinite
Subtotals
Less portion of valuation allowance established for operating loss
carryforwards
Total
138
4,716
12,395
18,300 $
(17,086)
1,214
$
5,005
3,704
17,599
44,396
70,704
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.
92
Table of Contents
During fiscal 2019 and 2018, changes in the total amount of unrecognized tax benefits were as follows:
(in thousands)
Fiscal Years Ended February 28,
2019
2018
Total unrecognized tax benefits, beginning balance
$
4,428 $
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
—
15
(1,057)
(161)
(20)
3,205
(316)
$
2,889 $
6,611
(1,486)
88
(890)
218
(113)
4,428
(1,079)
3,349
Included in the balance of unrecognized tax benefits at the end of fiscal 2019 were $3.2 million (includes
interest) 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 2019 and 2018, the liability for tax-related interest and penalties included in unrecognized tax
benefits was $0.6 million and $1.1 million, respectively. Additionally, during fiscal 2019, 2018 and 2017
we recognized tax benefits from tax-related interest and penalties of $0.5, $0.5 and $0.6 million,
respectively, in the consolidated statements of income.
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, 2019, tax years under examination or still subject to examination by material tax
jurisdictions are as follows:
Jurisdiction
Tax Years Under Examination
Open Tax Years
United Kingdom
United States
Switzerland
Hong Kong
- None -
2016 - 2018
- None -
- None -
2018
2016
2015
2013
—
—
—
—
2019
2019
2019
2019
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.
93
Table of Contents
Note 21 – 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 9 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 2019, 2018 and 2017, the components of basic and diluted shares were as follows:
Fiscal Years Ended February 28,
2018
2017
2019
26,073
230
26,303
262
27,077
177
27,254
319
27,522
369
27,891
137
WEIGHTED AVERAGE DILUTED SECURITIES
(in thousands)
Weighted average shares outstanding, basic
Incremental shares from share-based compensation arrangements
Weighted average shares outstanding, diluted
Antidilutive securities
94
Table of Contents
HELEN OF TROY LIMITED AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(in thousands)
Year Ended February 28, 2017
Allowances for doubtful accounts
Year Ended February 28, 2018
Allowances for doubtful accounts
Year Ended February 28, 2019
Allowances for doubtful accounts
Beginning
Balance
Additions (1) Deductions (2)
Ending
Balance
$
$
$
1,712 $
2,277 $
723 $
3,266
3,266 $
1,066 $
1,420 $
2,912
2,912 $
1,097 $
1,977 $
2,032
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 write-offs of doubtful accounts, net of recoveries of previously reserved amounts.
95
Table of Contents
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, 2019. 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 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, 2019, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
96
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information in our definitive Proxy Statement for the 2019 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”;
Information about Section 16(a) beneficial ownership reporting compliance is set forth under
“Section 16(a) Beneficial Ownership Reporting Compliance”; and
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.helenoftroy.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.
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.
97
Table of Contents
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)
1. Financial Statements: See “Index to Consolidated Financial Statements” under Item 8 in this
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
10.7
10.8
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”)).
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).
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).
98
Table of Contents
10.9
10.10
10.11
10.12
10.13*
10.14
10.15
10.16
10.17
10.18
10.19
10.20*†
10.21*†
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).
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).
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).
First Amendment to Helen of Troy Limited 2008 Employee Stock Purchase Plan.
Second Amendment to Helen of Troy Limited 2008 Employee Stock Purchase Plan.
99
Table of Contents
10.22†
10.23†
10.24†
10.25
10.26
Amended and Restated Employment Agreement among Helen of Troy Nevada Corporation,
Helen of Troy Limited, a Bermuda company, Helen of Troy Limited, a Barbados company,
and Julien Mininberg, effective March 1, 2019 (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 November 7, 2018).
Helen of Troy Limited 2018 Stock Incentive Plan (incorporated by reference to Annex B of
the Company's Definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on June 28, 2018).
Helen of Troy Limited 2018 Employee Stock Purchase Plan (incorporated by reference to
Annex B of the Company's Definitive Proxy Statement on Schedule 14A, filed with the
Securities and Exchange Commission on June 28, 2018).
Fourth Supplemental Trust Indenture, dated effective as of September 28, 2018, by and
between Mississippi Business Finance Corporation and U.S. Bank National Association
(successor to Deutsche Bank National Trust Company), as trustee (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period
ending November 30, 2018, filed with the Securities and Exchange Commission on January
9, 2019).
Fifth Amendment to Guaranty Agreement, dated effective as of September 28, 2018, 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 Quarterly Report on Form 10-Q
for the period ending November 30, 2018, filed with the Securities and Exchange
Commission on January 9, 2019).
32**
31.2*
21*
23.1*
31.1*
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.
101.INS*
XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
101.DEF* XBRL Taxonomy Extension Definition Linkbase
101.LAB* XBRL Taxonomy Extension Label Linkbase
101.PRE* XBRL Taxonomy Extension Presentation Linkbase
100
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
HELEN OF TROY LIMITED
By: /s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer and Director
April 29, 2019
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 29, 2019
/s/ Brian L. Grass
Brian L. Grass
Chief Financial Officer, Principal Financial Officer and
Principal Accounting Officer
April 29, 2019
/s/ Gary B. Abromovitz
Gary B. Abromovitz
Director, Deputy Chairman of the Board
April 29, 2019
/s/ Timothy F. Meeker
Timothy F. Meeker
Director, Chairman of the Board
April 29, 2019
/s/ Beryl B. Raff
Beryl B. Raff
Director
April 29, 2019
/s/ Darren G. Woody
Darren G. Woody
Director
April 29, 2019
/s/ William F. Susetka
William F. Susetka
Director
April 29, 2019
/s/ Krista Berry
Krista Berry
Director
April 29, 2019
/s/ Thurman K. Case
Thurman K. Case
Director
April 29, 2019
/s/ Vincent D. Carson
Vincent D. Carson
Director
April 29, 2019
101
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
The following is a list of subsidiaries of the company as of February 28, 2019, omitting subsidiaries
which, considered in the aggregate, would not constitute a significant subsidiary.
Name
Incorporation
Doing Business as
Helen of Troy Limited
Barbados
Helen of Troy Commercial Offshore de Macau Limitada
Macau
Same Name
Same Name
Helen of Troy L.P.
Idelle Labs, Ltd.
OXO International Ltd.
HOT (UK) Limited
Steel Technologies, LLC
Kaz, Inc.
Kaz USA, Inc.
Pur Water Purification Products, Inc.
Kaz Europe Sarl
Helen of Troy Texas Corporation
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
Massachusetts
Nevada
Switzerland
Texas
Same Name and Hydro Flask
Same Name
Same Name
Same Name
Same Name
Same Name
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We have issued our reports dated April 29, 2019, 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, 2019. 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. 333-178217; File No. 333-227074; and File No. 333-227075).
/s/ GRANT THORNTON LLP
Dallas, Texas
April 29, 2019
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 29, 2019
/s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer,
Director and Principal Executive Officer
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 29, 2019
/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, 2019, 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 29, 2019
/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.